BILL ANALYSIS Ó
SB 185
Page 1
SENATE THIRD READING
SB
185 (De León)
As Amended June 2, 2015
Majority vote
SENATE VOTE: 24-14
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Public |5-1 |Bonta, Cooley, |Waldron |
|Employees | |Jones-Sawyer, | |
| | |O'Donnell, Rendon | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |12-5 |Gomez, Bloom, Bonta, |Bigelow, Chang, |
| | |Calderon, Nazarian, |Gallagher, Jones, |
| | |Eggman, Eduardo |Wagner |
| | |Garcia, Holden, | |
| | |Quirk, Rendon, Weber, | |
| | |Wood | |
| | | | |
| | | | |
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SUMMARY: Prohibits the California Public Employees' Retirement
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System (CalPERS) and California State Teachers' Retirement
System (CalSTRS) from investing in thermal coal companies, as
specified. Specifically, this bill:
1)Prohibits the CalPERS and CalSTRS from making new or
additional investments of public employee retirement funds in
thermal coal companies.
2)Requires CalPERS and CalSTRS to liquidate investments in
thermal coal companies on or before July 1, 2017.
3)States that CalPERS and CalSTRS, in making a determination to
liquidate investments in a thermal coal company, are to
constructively engage with the 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.
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% or more of its revenue from the mining of
thermal coal.
6)Requires CalPERS and CalSTRS to file a report with the
Legislature and the Governor on or before January 1, 2018,
which must include:
a) A list of thermal coal companies of which the board has
liquidated its investments.
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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.
7)States that nothing in this bill requires CalPERS and CalSTRS
to take action unless they determine, in good faith, that the
action is consistent with their fiduciary responsibilities as
described in California Constitution Article XVI Section 17.
8)Provides that CalPERS and CalSTRS board members and other
covered persons, as described, are 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.
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."
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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 CalPERS and CalSTRS from investing in companies with
active business operations in Sudan and in Iran, as specified.
FISCAL EFFECT: According to the Assembly Appropriations
Committee:
1)One-time Special Fund administrative and transaction costs of
approximately $1.45 million and $700,000 to CalPERS and
CalSTRS, respectively, and ongoing annual administrative costs
of approximately $350,000 and $150,000 to CalPERS and CalSTRS,
respectively, to comply with identification, liquidation, and
reporting requirements.
2)Potentially substantial opportunity costs to each fund as a
result of liquidation and limitations on future investments,
leading to potential future General Fund pressure to augment
contributions to defined benefit programs.
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COMMENTS: 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."
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."
According to supporters, "Many reputable investment advisors and
market data firms, like MSCI and FTSE, have produced research
that shows the effects of fossil fuel divestment on a portfolio
are de minimis. In fact, over the past five years, fossil free
portfolios have outperformed the market while maintaining low
risk metrics. The coal companies in question have been a drag
on the retirement system for the last decade. Since 2008 the
coal industry has plummeted in stock value by 66.9 percent.
Divesting from coal is not only the right thing to do, it's the
prudent and logical thing to do."
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Opponents believe this bill "unfairly targets one type of
business in which to divest from state retirement funds,
starting down a slippery slope for divestiture from other
businesses based on principles unrelated to fiduciary
responsibility to the retirees."
Current and Prior Legislation:
AB 1410 (Nazarian), of the current legislative session, would
have prohibited CalPERS and CalSTRS from investing public
employee retirement funds in specified investments issued by,
owned, controlled, or managed by the government of Turkey. AB
1410 bill was held in the Assembly Appropriations Committee.
AB 761 (Dickinson), of 2013, would have prohibited CalPERS and
CalSTRS from investing in companies that manufacture firearms or
ammunition for a recipient other than the United States
military, subject to a process specified in the bill and
consistent with previous divestment legislation, but subject to
the board's fiduciary duties. AB 761 was held in the Assembly
Appropriations Committee.
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.
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Analysis Prepared by:
Karon Green / P.E.,R., & S.S. / (916) 319-3957
FN:
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