BILL ANALYSIS Ó
-----------------------------------------------------------------
|SENATE RULES COMMITTEE | SB 185|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
-----------------------------------------------------------------
THIRD READING
Bill No: SB 185
Author: De León (D), et al.
Amended: 6/2/15
Vote: 21
SENATE PUBLIC EMP. & RET. COMMITTEE: 3-2, 4/13/15
AYES: Pan, Beall, Hall
NOES: Morrell, Fuller
SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/28/15
AYES: Lara, Beall, Hill, Leyva, Mendoza
NOES: Bates, Nielsen
SUBJECT: Public retirement systems: Public Divestiture of
Thermal Coal Companies Act
SOURCE: Author
DIGEST: This bill prohibits the California Public Employees'
Retirement System (CalPERS) and the California State Teachers'
Retirement System (CalSTRS) boards from making new or additional
investments of public employee retirement funds in thermal coal
companies, as defined, and requires each board to liquidate its
existing investments in thermal coal companies on or before July
1, 2017, provided that the boards make a good faith
determination that thermal coal divestment is consistent with
their fiduciary responsibility. The boards must first
constructively engage with the affected companies to determine
whether they are transitioning to clean energy generation and
must report to the Legislature and Governor by January 1, 2018,
on the boards' engagement and divestment activities.
SB 185
Page 2
ANALYSIS:
Existing law:
1)Pursuant to the California Constitution provides that:
a) The respective boards of California's public retirement
systems have "?plenary authority and fiduciary
responsibility for investment of monies and administration
of the system."
b) The Legislature retains its authority, by statute "?to
prohibit certain investments by a retirement board where it
is in the public interest to do so, and provided that the
prohibition satisfies the standards of fiduciary care and
loyalty required of a retirement board pursuant to this
section."
c) "The members of the retirement board of a public pension
or retirement system shall discharge their duties with
respect to the system solely in the interest of, and for
the exclusive purposes of providing benefits to,
participants and their beneficiaries, minimizing employer
contributions thereto, and defraying reasonable expenses of
administering the system."
2)Prohibits the respective CalPERS and CalSTRS boards (board)
from investing public employee retirement funds in companies:
a) With business operations in the defense and nuclear
sectors of Iran, or that are involved in the development of
Iranian petroleum or natural gas resources and are subject
to specified federal sanctions, or have demonstrated
complicity with an Iranian organization that has been
labeled as a terrorist organization by the U.S. government.
b) That supply military equipment within the borders of
Sudan. If a company provides equipment within the borders
of Sudan that may be readily used for military purposes,
including, but not limited to, radar systems and
military-grade transport vehicles, there shall also be a
SB 185
Page 3
strong presumption against investing in that company unless
that company implements safeguards to prevent the use of
that equipment for military purposes.
3)Requires the board to file annual reports with the Legislature
detailing relevant investments in companies subject to the
investment restrictions on investing in Iran and Sudan, and
any actions that the board has taken related to those
restrictions.
4)States that the board is not required to implement the
divestment provisions related to Iran and Sudan or take other
prescribed actions, as specified, unless it determines, in
good faith, that the action is consistent with its fiduciary
duties.
5)Requires the board, whenever feasible and consistent with its
fiduciary responsibility, to support shareholder resolutions
designed to encourage domestic and international corporations
in which it has invested to pursue a policy of affirmative
action in Northern Ireland in compliance with the law
applicable in Northern Ireland and in accordance with the
goals as defined in California statute, as specified.
6)Provides that board members and other covered persons, as
described, shall be indemnified from the General Fund and held
harmless by the State of California from all claims, demands,
suits, etc., sustained by reason of any decision to restrict
investments in Iran or Sudan pursuant to the relevant
provisions of law.
This bill:
1)Prohibits the respective CalPERS and CalSTRS boards from
making new or additional investments of public employee
retirement funds in thermal coal companies.
2)Requires the board to liquidate investments in thermal coal
companies on or before July 1, 2017.
3)States that the board, in making a determination to liquidate
investments in a thermal coal company, shall constructively
engage with the thermal coal company to establish whether the
company is transitioning its business model to adapt to clean
SB 185
Page 4
energy generation, such as through a decrease in its reliance
on thermal coal as a revenue source.
4)Defines thermal coal as coal used to generate electricity and
excludes from the definition "metallurgical" or "coking" coal
used to produce steel.
5)Defines a thermal coal company as a publicly traded company
that generates 50 percent or more of its revenue from the
mining of thermal coal.
6)Requires the board to file a report with the Legislature and
the Governor on or before January 1, 2018, which shall
include:
a) A list of thermal coal companies of which the board has
liquidated its investments.
b) A list of companies with which the board engaged and
that the board established were transitioning to clean
energy generation, with supporting documentation to
substantiate the board's determination.
c) A list of thermal coal companies of which the board has
not liquidated its investments as a result of a
determination that a sale or transfer of investments is
inconsistent with the board's fiduciary duty along with the
board's findings adopted in support of that determination.
1)States that nothing in this bill shall require a board to take
action unless the board determines, in good faith, that the
action is consistent with the board's fiduciary
responsibilities as described in Section 17 of Article XVI of
the California Constitution.
2)Provides that board members and other covered persons, as
described, shall be indemnified from the General Fund and held
harmless by the State of California from all claims, demands,
suits, etc., sustained by reason of any decision to restrict,
reduce, or eliminate investments pursuant to this bill's
provisions.
Background
SB 185
Page 5
According to CalPERS and CalSTRS, the two funds "are members of
the Investor Network on Climate Risk - a leading network of 100
U.S. institutional investors, representing more than $10
trillion, addressing a policy agenda that calls on governments
and regulators to introduce carbon pricing and disclosure, so
that risks can be addressed effectively. This is part of a
global effort among investors worth $24 trillion that have
signed and supported the United Nations Statement on Climate
Change."
Also, the two funds state "our pension funds prefer constructive
engagement to divesting as a means of affecting the conduct of
companies in which we invest." "When considering divestment, we
firmly believe that active and direct engagement as a first line
approach is the best way to resolve issues."
Prior/Related Legislation
AB 1410 (Nazarian, 2015) prohibits CalPERS and CalSTRS from
investing public employee retirement funds in specified
investments issued by, owned, controlled, or managed by the
government of Turkey.
AB 1151 (Feuer, Chapter 441, Statutes of 2011) clarified that
CalPERS and CalSTRS must divest pension funds, as specified,
unless to do so would fail to satisfy their fiduciary
responsibility. The law also modifies the types of companies
that fall within the Act's scope and requires certain findings
and determinations be made in noticed public hearings.
AB 221 (Anderson, Chapter 671, Statutes of 2007) prohibited
CalPERS and CalSTRS from investing in companies that have
specified energy or defense-related operations in Iran.
AB 2941 (Koretz, Chapter 442, Statutes of 2006) prohibited
CalPERS and CalSTRS from investing public employee retirement
funds in a company with business operations in the Sudan, as
specified.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
SB 185
Page 6
According to the Senate Appropriations Committee:
One-time administrative/transactional costs of approximately
$683,500 and $129,100 annual ongoing costs to CalSTRS (Special
Fund)
One-time administrative/transactional costs of approximately
$1.46 million and $365,000 annual ongoing costs to CalPERS
(Special Fund)
CalSTRS indicates that the pension system currently invests in
12 companies with a combined market value of approximately $40
million that meet the definition of thermal coal company.
CalPERS invests in approximately 20-30 thermal coal companies
valued at approximately $100-$200 million. The pension systems
may additionally incur opportunity costs if suitable alternative
investments are unavailable.
SUPPORT: (Verified5/29/15)
350 Sacramento
American Lung Association in California
California Public Health Association - North
Center for Climate Change and Health; Public Health Institute
Cool Davis
Cool Planet
Doctors for Climate Health
Friends Committee on Legislation of California
Health Care Without Harm
Human Impact Partners
Physicians for Social Responsibility
Physicians for Social Responsibility - Los Angeles
Public Health Institute
Regional Asthma Management and Prevention
San Francisco Asthma Task Force
Yolo MoveOn Council
OPPOSITION: (Verified5/29/15)
California Business Properties Association
SB 185
Page 7
California Chamber of Commerce
California Independent Petroleum Association
California Manufacturers and Technology Association
National Federation of Independent Business
ARGUMENTS IN SUPPORT: According to the author, "Coal
combustion for energy generation is the single leading cause of
the pollution that causes global climate change." Also, burning
coal is "a leading cause of smog, acid rain, and toxic air
pollution. Some emissions can be significantly reduced with
readily available pollution controls, but most U.S. coal plants
have not installed these technologies."
ARGUMENTS IN OPPOSITION: According to the California Chamber of
Commerce, "divestment from coal and fossil fuels could threaten
the financial strength of CalPERS and CalSTRS, and undermine
their fiduciary responsibility by using these retirement funds
to target unpopular companies for financial harm."
Prepared by:Glenn Miles / P.E. & R. / (916) 651-1519
6/2/15 10:02:44
**** END ****