Amended in Senate March 25, 2015

Senate Bill No. 185

Introduced by Senator De León

February 9, 2015

An act to begin delete add Article 5 (commencing with Section 7524) to Chapter 21 of Division 7 of Title 1 of end delete begin insert amend Section 16642 of, and to add Section 7513.75 to, end insert the Government Code, relating to public retirement systems.

LEGISLATIVE COUNSEL’S DIGEST

SB 185, as amended, De León. Public retirement systems: Public Divestiture of Thermal Coal Companies Act.

The California Constitution provides that the Legislature may by statute prohibit retirement board investments if it is in the public interest to do so, and providing that the prohibition satisfies specified fiduciary standards.

Existing law prohibits the Public Employees’ Retirement System and the State Teachers’ Retirement System from investing public employee retirement funds in a company with active business operations in Sudan, as specified, and requires these retirement systems to liquidate any investments in a company with business operations in Sudan. Existing law also prohibits these retirement systems from investing in a company that has specified investments in the energy sector of Iran, as defined, including in a company that provides oil or liquefied natural gas tankers, or products used to construct or maintain pipelines used to transport oil or liquefied natural gas.

This bill would begin delete create the Public Divestiture of Thermal Coal Companies Act and require end delete begin insert prohibit end insert the boards of the Public Employees’ Retirement System and the State Teachers’ Retirement System begin delete to divest the end delete begin insert from making new investments or renewing existing investments of end insert public employee retirement funds begin delete of any investments end delete in a thermal coal company, as begin delete defined, and prohibit additional or new investments or the renewal of existing investments in a thermal coal company end delete begin insert defined end insert . This bill would begin delete also end delete require the boards to liquidate begin delete the end delete investments begin delete of the board in a thermal coal company, as specified. This bill would require these actions to be undertaken consistently with the board’s fiduciary responsibilities specified in the California Constitution. end delete begin insert in thermal coal companies on or before July 1, 2017, and would require the boards, in making a determination to liquidate investments, to constructively engage with thermal coal companies to establish whether the companies are transitioning their business models to adapt to clean energy generation. The bill would require the boards, in consultation with the Secretary of the California Environmental Protection Agency, to make a comprehensive assessment of the feasibility and implications of divesting the retirement system funds of additional fossil fuel investments, such as natural gas and petroleum. The bill would provide that it does not require a board to take any action if the board determines and adopts findings that the action would violate the board’s fiduciary responsibilities established in the constitution. end insert The bill would make related legislative findings and declarations.

This bill would require, on or before January 1, begin delete 2017, end delete begin insert 2018, end insert these boards to file a report to the Legislature and the Governor, containing specified information, including a list of begin delete investments and end delete companies of which begin delete it has divested end delete begin insert they have liquidated their investments. The bill would provide that board members and other officers and employees shall be held harmless and be eligible for indemnification in connection with actions taken pursuant to the bill end insert begin insert ’s requirements, as specified end insert .

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

begin insert

begin insert SECTION 1. end insert   

end insert

begin insert Section 7513.75 is added to the end insert begin insert Government Code end insert begin insert ,
to read: end insert

begin insert

begin insert 7513.75. end insert   

(a) The Legislature finds and declares all of the
following:

(1) The combustion of coal resources is the single largest
contributor to global climate change in the United States.

(2) Climate change affects all parts of the California economy
and environment, and the Legislature has adopted numerous laws
to mitigate greenhouse gas emissions and to adapt to a changing
climate.

(3) The purpose of this article is to require the Public
Employees’ Retirement System and the State Teachers’ Retirement
System, consistent with, and not in violation of, their fiduciary
responsibilities, to divest their holding of thermal coal power as
one part of the state’s broader efforts to decarbonize the California
economy and to transition to clean, pollution free energy resources.

(b) As used in this section, the following definitions apply:

(1) “Board” means the Board of Administration of the Public
Employees’ Retirement System or the Teachers’ Retirement Board
of the State Teachers’ Retirement System, as applicable.

(2) “Company” means a sole proprietorship, organization,
association, corporation, partnership, venture, or other entity, or
its subsidiary or affiliate, that exists for profit-making purposes
or to otherwise secure economic advantage.

(3) “Investment” means the purchase, ownership, or control of
publicly issued stock, corporate bonds, or other debt instruments
issued by a company.

(4) “Public employee retirement funds” means the Public
Employees’ Retirement Fund described in Section 20062 of this
code, and the Teachers’ Retirement Fund described in Section
22167 of the Education Code.

(5) “Thermal coal” means coal used to generate electricity,
such as that which is burned to create steam to run turbines.
Thermal coal does not mean metallurgical coal or coking coal
used to produce steel.

(6) “Thermal coal company” means a publicly traded company
that generates 50 percent or more of its revenue from the mining
of thermal coal, as determined by the board.

(c) The board shall not make additional or new investments or
renew existing investments of public employee retirement funds in
a thermal coal company.

(d) The board shall liquidate investments in a thermal coal
company on or before July 1, 2017. In making a determination to
liquidate investments, the board shall constructively engage with
a thermal coal company to establish whether the company is
transitioning its business model to adapt to clean energy
generation, such as through a decrease in its reliance on thermal
coal as a revenue source.

(e) On or before January 1, 2018, the board shall file a report
with the Legislature, in compliance with Section 9795, and the
Governor, which shall include the following:

(1) A list of thermal coal companies of which the board has
liquidated its investments pursuant to subdivision (d).

(2) A list of companies with which the board engaged pursuant
to subdivision (d) that the board established were transitioning to
clean energy generation, with supporting documentation to
substantiate the board’s determination.

(3) A list of thermal coal companies of which the board has not
liquidated its investments as a result of a determination made
pursuant to subdivision (g) that a sale or transfer of investments
is inconsistent with the fiduciary responsibilities of the board as
described in Section 17 of Article XVI of the California Constitution
and the board’s findings adopted in support of that determination.

(f) In consultation with the Secretary of the California
Environmental Protection Agency, the board shall make a
comprehensive assessment of the feasibility of divesting the public
employee retirement funds of additional fossil fuel investments,
such as natural gas and petroleum, and its implications for the
funds. A summary of this assessment shall be included in the report
required by subdivision (e).

(g) This section does not require the board to take any action
if the board determines and adopts findings, in good faith and
based on publicly available information, that the action would
violate the board’s fiduciary responsibilities described in Section
17 of Article XVI of the California Constitution.

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begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 16642 of the end insert begin insert Government Code end insert begin insert is amended to
read: end insert

16642.  

Present, future, and former board members of the Public
Employees’ Retirement System or the State Teachers’ Retirement
System, jointly and individually, state officers and employees,
research firms described in subdivision (d) of Section 7513.6, and
investment managers under contract with the Public Employees’
Retirement System or the State Teachers’ Retirement System shall
be indemnified from the General Fund and held harmless by the
State of California from all claims, demands, suits, actions,
damages, judgments, costs, charges and expenses, including court
costs and attorney’s fees, and against all liability, losses, and
damages of any nature whatsoever that these present, future, or
former board members, officers, employees, research firms as
described in subdivision (d) of Section 7513.6, or contract
investment managers shall or may at any time sustain by reason
of any decision to restrict, reduce, or eliminate investments
pursuant to Sections begin delete 7513.6 and 7513.7 end delete begin insert 7513.6, 7513.7, and
7513.75 end insert .

begin delete

SECTION 1.  

Article 5 (commencing with Section 7524) is
added to Chapter 21 of Division 7 of Title 1 of the Government
Code, to read:

 

Article 5.  Public Divestiture of Thermal Coal Companies Act

 

7524.  

This article may be known and cited as the Public
Divestiture of Thermal Coal Companies Act.

7524.1.  

The Legislature finds and declares all of the following:

(a) The combustion of coal resources is the single largest
contributor to global climate change in the United States.

(b) Climate change affects all parts of the California economy
and environment, and the Legislature has adopted numerous laws
to mitigate greenhouse gas emissions and to adapt to a changing
climate.

(c) The purpose of this article is to require the Public
Employees’ Retirement System and the State Teachers’ Retirement
System, consistent with, and not in violation of, their fiduciary
responsibilities, to divest their holding of thermal coal power as
one part of the state’s broader efforts to decarbonize the California
economy and to transition to clean, pollution free energy resources.

7524.2.  

For purposes of this article, the following definitions
shall apply:

(a) “Board” means the Board of Administration of the Public
Employees’ Retirement System or the Teachers’ Retirement Board
of the State Teachers’ Retirement System, as applicable.

(b) “Company” means a sole proprietorship, organization,
association, corporation, partnership, venture, or other entity, or
its subsidiary or affiliate that exists for profit making purposes or
to otherwise secure economic advantage.

(c) “Investment” means the purchase, ownership, or control of
stock of a company, association, or corporation, corporate bonds
or other debt instruments issued by a company, or the commitment
of funds or other assets to a company, including a loan or extension
of credit to that company.

(d) “Public employee retirement funds” means the Public
Employees’ Retirement Fund described in Section 20062 of this
code, and the Teachers’ Retirement Fund described in Section
22167 of the Education Code.

(e) “Thermal coal company” means a company engaged in the
combustion of coal as determined by the board using Bloomberg
Global Coal Index, Carbon Tracker, and Energy Transition
Advisors Indices.

7524.3.  

Consistent with the board’s fiduciary responsibilities
as described in Section 17 of Article XVI of the California
Constitution, and by the earliest feasible date after the enactment
of this article, the board shall undertake all of the following:

(a) The board, shall divest the public employee retirement funds
of any investments in a thermal coal company.

(b) The board shall not make additional or new investments or
renew existing investments in a thermal coal company.

(c) The board shall liquidate the investments of the board in a
thermal coal company no later than eighteen months after this
article applies to that company.

7524.4.  

On or before January 1, 2017, the board shall file a
report with the Legislature, in compliance with Section 9795, and
the Governor on the following:

(a) Actions it has taken to implement this article, including a
list of investments and companies of which it has divested.

(b) Recommendations to ensure the board is able to act
consistent with its fiduciary responsibilities as described in Section
17 of Article XVI of the California Constitution.

(c) In consultation with the Secretary of the California
Environmental Protection Agency, a comprehensive assessment
of the feasibility of divesting the public employee retirement funds
of additional fossil fuel investments such as natural gas and
petroleum and its implications for the fund.

7524.5.  

Nothing in this article shall require a board to take
action as described in this section unless the board determines, in
good faith, that the action described in this section is consistent
with the fiduciary responsibilities of the board as described in
Section 17 of Article XVI of the California Constitution.

end delete