Statement of Investment Responsibility


The Teachers’ Retirement Board finds that:

It is the fiduciary responsibility of the Board of the State Teachers’ Retirement System to discharge its responsibility in the interest of the participants and beneficiaries and for the primary purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administrating the System; the investment policy of the System should reflect and reinforce this purpose.

Public retirement systems operate in a unique and complex social-economic milieu, providing for substantial disclosure of their operations and investment activity and placing them in a position where they should be above that of the private sector in social responsibility activities.

The System’s responsibility extends to its participants and beneficiaries and to the general public. In addition to its fiduciary responsibilities to its members, the Board has the social and ethical obligation to require that corporations in which securities are held meet a high standard of conduct in their operations.

The act of investment in the securities of a corporation predominantly reflects a judgment that the ownership will produce a rate of return which will make it an attractive investment. While not outwardly signifying approval of all of a company’s policies and products, it is possible however that such investment may be interpreted as an indication of the shareholders approval or support of all of a company’s policies and products.

The System is a large investor and as such, is in a position to exert influence on the corporations in which it has invested.

Consistent with these findings, the System establishes the following principles to govern the development of a responsible investment policy:

A. Preservation of Principal and Maximization of Income
The preservation of principal and maximization of income will clearly be the primary and underlying criteria for the selection and retention of securities.

B. Non-Economic Factors
Non-economic factors will supplement profit factors in making investment decisions. Non-economic factors are defined as those considerations not directly related to the maximization of income and the preservation of principal. The consideration of non-economic factors is for the purpose of ensuring that the Retirement System, either through its action or inaction, does not promote, condone or facilitate social injury.

C. Social Injuries Defined
Social injury will be said to exist when the activities of a corporation serve to undermine basic human rights or dignities. Basic human rights and dignities include, but are not limited to:

D. Corporate Practices
Social injury may also be said to exist when the Board, having followed the procedure set forth in Section IV.C.2, perceives that it is the prevailing belief of the members of the Retirement System that the practices of a corporation result in undesirable side effects for others, and that the side effects are grave in nature. Side effects which may be deemed grave in nature shall include, but not be limited to:

E. CalSTRS Involvement
The extent of the responsibility of the System to engage in activity for the prevention, reduction, and elimination of social injury should be determined by:

In support of the aforementioned principles, the System sets forth the following guidelines for social responsibility in investments.

In selecting new investments for the System, the Board adopts the following guidelines for both domestic and international investments.

A. Investments shall not be selected or rejected based solely on social responsibilities.

B. Social factors shall be taken into consideration to the extent that such factors bear on the financial advisability of the investment; e.g., not investing in a corporation whose conduct has had a demonstrated negative effect on the corporation’s financial viability.

C. Generally, social criteria, to the extent available, should be considered after all financial criteria have been satisfied.

A. Proxy Voting

B. Other Shareholder Rights

C. Procedure

A. When the remedies provided in B (above) indicate that there is little or no possibility of obtaining from a company a commitment to pursue activities designed to correct practices or policies involving grave social injury, the Board should consider either making no new investments or divestment if consistent with sound investment practice. Factors contributing to such a determination include, but are not limited to:

B. A company committing social injury should not be subject to consideration for divestment if it is determined that the company is engaged in socially beneficial activity, where the resulting benefits are held to be greater than the injury. However, it is not the intention of this paragraph to imply a condonation of the social injury, nor does it preclude the exercise of shareholder rights in an effort to reduce such injury.

  1. Philosophy

  2. Principles

    1. Equal Employment
      Equal employment opportunity, including: fair and equitable recruitment and hiring, equal wages and benefits for equal and comparable worth, fair and equitable promotional and training opportunities, and the right to organize and join representative trade unions and associations if a majority of the employees so elect.

    2. Housing
      Equal access to safe and decent housing.

    3. Basic Services
      Equal access to basic services including medical care, transportation, recreation and education.
    1. Environmental
      Practices which are known to endanger the environment, subject to current federal, state and local law, including:
      1. Unsafe nuclear waste disposal;
      2. Ineffective or inadequate pollution control; or
      3. Improper use of chemicals and contaminants; or
      4. Any practice which directly or indirectly endangers human health or the environment.

    2. Suppression of Human Rights
      Practices which result in the suppression of human rights including:
      1. The sale of weapons and technology to governments known to engage in the systematic suppression of human rights; and
      2. The sale or purchase of goods from countries known to employ forced labor.
      3. The sale or purchase of goods, or the rendering of services that the corporation knows or can reasonably foresee will be used in a manner that denies or suppresses human rights in violation of international law or the Geneva Conventions where the company has taken reasonable steps to ensure that the services would not be used in that manner.

    3. Human Health
      Practices which endanger human health including:
      1. Sale and distribution of known contaminated products;
      2. Sale and distribution of therapeutically ineffective or dangerous drugs; and
      3. Purchasing goods from or selling goods to companies known to disregard worker safety.
      4. A company should not be held responsible for the infliction of social injury merely by virtue of its agreements or relationships with other (independent) entities engaged in socially injurious activities.
    • The number of shares held in the corporation;
    • The gravity of the social injury.
  3. Selecting New Investments

  4. Exercise of Shareholder Rights

    1. The System has a duty to cast its votes on all proxy issues related to companies in which it holds securities or to abstain with written notification to the company involved on any proxies it returns. In cases of abstention, where an important social responsibility issue is raised, the System should provide an explanation of its action.
    2. The System should vote its shares in favor of resolutions which, if implemented, would prevent, reduce, or eliminate social injury as defined above. The System should oppose resolutions which cause or facilitate social injury.
    3. If a resolution places a company at a substantial disadvantage with respect to its direct competitors who are equally guilty of inflicting social injury, the System should ascertain whether the company in question has made reasonable effort to induce voluntary industry-wide compliance. If it is determined that this course of action has been pursued, the System should abstain. In the event that a corporation has not initiated such activity, the explanation accompanying abstention should include an exhortation for compliance.
    4. The State Teachers’ Retirement System, as a major corporate shareholder, will actively vote its proxies to elect corporate board members who share the interests and philosophy of the System.
    5. The System should routinely monitor corporate practices for compliance with the Board’s criteria, i.e., monitor corporate compliance with the Sullivan principles.
    1. For the purpose of insuring that a company may be made aware of any policies, procedures, or products of which the Board does not approve, and for the purpose of prevention, reduction or elimination of social injury, the Board may initiate action to supplement the responsible voting of proxies including but not limited to: (a) correspondence with the company, (b) meet and confer sessions with management or other stockholders, © entering into agreements with management or other stockholders, such as making provisions for reporting and other monitoring activities, and (d) the initiation, when determined necessary, of shareholder proposals.
    1. Responsibility for the implementation of social responsibility guidelines is delegated to the Board’s Investment Committee. Ultimate authority and responsibility rests with the Board.
    2. To assist the Board in determining whether social injury exists, the Board should:
      1. Upon request, permit the presentation of relevant testimony by members of the System and members of the general public during Board meetings;
      2. Establish contact with appropriate regulatory agencies, such as Equal Employment Opportunity Commission, Environmental Protection Agency, Occupational Safety and Health Agency, Nuclear Regulatory Commission, Securities Exchange Commission, and others which are covered by laws of the United States Government or the State of California;
      3. Contact qualified persons representing parties affected by the corporate practice in question.

  5. Sanctions

    1. Repeated refusal by management and a majority of stockholders to support shareholder proposals which the Board feels are necessary to insure socially responsible behavior;
    2. Failure of management to comply with Board requests for the disclosure of economic or non-economic information important to making investment decisions, in particular, information pertaining to company practices and policies which might result in social injury.

  Adopted by the Teachers’ Retirement Board June 16, 1978

  Revised by the Teachers’ Retirement Board September 24, 1982

  Revised by the Teachers’ Retirement Board April 27, 1984

  Revised by the Teachers’ Retirement Board April 21, 1989

  Revised by the Teachers’ Retirement Board January 9, 1990

  Revised by the Investment Committee November 5, 1997

  Adopted by the Teacher’s Retirement Board November 6, 1997

  Revised by the Subcommittee on Corporate Governance November 3, 2004

  Adopted by the Investment Committee November 3, 2004