Editorial: California should cut its economic ties with Russia

The reprehensible war Russia launched in Ukraine last week has quickly brought into focus the interconnectedness of our globalized economy. A cocktail sipped in Los Angeles might be mixed with Russian vodka. A fill-up at an Irvine gas pump could hand money to a Russian oil company. A monthly pension check for a retired firefighter in Riverside may include dividends from investments in Russian companies.

Vladimir Putin’s unprovoked attack on a sovereign democratic nation has many Americans considering cutting these and other economic ties to Russia. Boycotting vodka might not do much to influence Putin (just 1.2% of vodka imported to the U.S. comes from Russia), but we support the spirit of companies, government leaders and individuals seeking ways to use their dollars to show solidarity with Ukraine — even if some are more symbolic than substantive.

More effective and potentially more influential will be decisions that involve big money, such as the actions taken by leading oil companies BP, Shell and Exxon Mobil to dump investments in Russian oil and gas projects. The same would be true for California, the world’s fifth-largest economy, in divesting from Russia.

This week Gov. Gavin Newsom and a bipartisan chorus of state lawmakers are calling for California’s three major pension funds — CalPERS, CalSTRS and the University of California — to dissolve their collective $1.5 billion in investments in Russian entities. They include stock in multinational corporations, private equity and real estate investments, and debt. Other states are considering directing their public pension funds to divest from Russian holdings, but none would have the impact of California.

Business

California’s largest pension funds have ties to Russia. That soon may change

Gov. Newsom calls on state pension funds CalPERS and CalSTRS, as well as the UC Retirement System, to divest Russian assets over the war in Ukraine.

March 1, 2022

Russia’s aggression is one of the rare cases in which there is a clear moral imperative to call for divestment. All too often, California’s lawmakers have sought to use the $469-billion might of CalPERS and the state’s other public pension funds to make political statements against particular issues, such as the Dakota Access pipeline or private corrections companies.

Public pension funds have a responsibility not to support evil, corrupt or destructive forces that do more harm than good. That’s true for products, like tobacco and firearms, as well as government regimes. The decision by pension funds and U.S. companies to divest from South Africa in the late 1970s and 1980s, for example, helped raise awareness about apartheid, which in turn led to its demise.

Nevertheless, divestment is more complicated than simply withdrawing money from an account and should not be undertaken lightly. Some retirement systems hoping to divest from Russia have already found they can’t sell their stocks because of disruptions to Russia’s central bank. Pension funds that manage to divest from Russia will probably sell at a significant loss, which has negative impacts for retirees and taxpayers.

Another potential complication is that such action against a foreign nation can make it harder for the federal government to negotiate an end to sanctions in the future. The Obama administration ran into this problem when negotiating the end of sanctions with Iran, because the federal government could not make promises on behalf of states (including California) that had divested. Though many states structured their penalties against Iran to expire when the U.S. lifted federal sanctions, others continued their economic restrictions.

But it is the right thing to do. We think that the possible complications are surmountable, and that Newsom and lawmakers can craft a thoughtful plan to divest from Russia that will not delay the federal government’s negotiations toward peace, when that time comes.

The U.S. government was right to impose economic sanctions on Russia, coordinate with European allies and send Ukraine weapons and other military equipment to help it defend itself from Russian attacks. And it’s understandable that all Americans would want to do what they can do to show support for Ukraine, even if it’s just choosing tequila over vodka. But California can and should do more than just show moral support by yanking our dollars away from Russia.