BILL ANALYSIS
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 1632
Nell Soto, Chair Hearing date: April 20, 2004
SB 1632 (Figueroa) as amended April 13, 2004
FISCAL: YES
PUBLIC RETIREMENT SYSTEMS: REQUIRED REPORTING ON THE
ENVIRONMENTAL AND SOCIAL PRACTICES OF THE FIRMS WHICH ARE
HELD AS INVESTMENTS
HISTORY :
Sponsor: Natural Heritage Institute
Prior legislation: SB 1245 (Hayden),
Chapter 216 of 1999
SB 105 (Burton),
Chapter 341 of 1999
SUMMARY :
Would require public pension systems to request information
from corporations within the internal equity index fund of
their respective investment portfolios regarding the
following:
a) the corporation's compliance with international human
right standards, including the International Labor
Organization's Core Labor Principles, as expressed in its
Declaration on Fundamental Principles and Rights at Work,
b) public health, human rights, environmental, employment,
consumer protection, corruption-related violations, and
c) whether or not the corporation has adopted an
environmental management system or is a member of the
Coalition for Environmentally Responsible Economies (CERES)
or the Global Reporting Initiative.
Would also require reports to the Legislature regarding the
information received (the due date and frequency of the
reports is not specified), and posting of the information on
the pension system's website.
David Felderstein
Date: 4/16/04 Page 1
BACKGROUND AND ANALYSIS :
1) This bill states, in a findings and declarations section,
that:
a) while many multinational corporations do business in
California, this state often has little or no information
about the activities of those companies abroad concerning
the environment, public health, labor and human rights, and
b) the fiduciaries of California's public retirement
systems need more information concerning corporate
environmental and social practices "in order to evaluate a
company's internal controls, financial risks, and earnings
potential".
2) This bill requires all of California's public retirement
systems to request that corporations whose stock the
retirement systems hold provide the following information:
a) Has the corporation adopted and complies with
international human right standards, including the
International Labor Organization's Core Labor Principles,
as expressed in its Declaration on Fundamental Principles
and Rights at Work?
b) Has the corporation been cited or penalized for
violations of public health, human rights, environmental,
employment, consumer protection, or corruption-related
violations?
c) Has the corporation adopted an environmental management
system or is it a member of specified organizations which
can ensure it is environmentally responsible?
Each public pension system would be required to report its
findings to the Legislature and make that information
available to the public.
3) This bill further states:
a) that nothing in the bill "?shall be construed to limit
the ability of a public pension" to carry out its fiduciary
duty,
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Date: 4/16/04 Page 2
b) that if a corporation fails to provide requested
information, the retirement system may take action based on
that failure and that such action "shall be consistent"
with the system's fiduciary duty as a prudent investor, and
c) that if a corporation submits false information under
this bill, it will be "liable for damages or equitable
relief under applicable provisions of law".
COMMENTS :
1) The Committee is advised that the author will offer
amendments at the hearing to provide that each public pension
system in the state shall, to the extent feasible , request
the information required by this bill.
David Felderstein
Date: 4/16/04 Page 3
2) REFERENCED Benchmarks, Standards, and Organizations
Internal Equity Index Fund
This fund predominantly represents stocks (equity) of about
2,000 publicly traded domestic corporations that are managed
internally by CalPERS staff. The objective of this fund is
to replicate as closely as possible the total return and
characteristics, such as size of companies (capitalizations)
and types of industries (sector), of the Wilshire 2500 Index.
The Wilshire 2500 Index is a measure of the U.S. equity
market, encompassing all market capitalization ranges and
types.
International Labor Organization's (ILO's) Declaration on
Fundamental Principles and Rights at Work
Adopted in 1998, the ILO Declaration on Fundamental
Principles and Rights at Work is an expression of commitment
by governments, employers' and workers' organizations to
uphold basic human values viewed by the ILO as vital to our
social and economic lives. The Declaration provides a
standard employed in international investments all over the
world, and covers four areas:
- Freedom of association and the right to collective
bargaining,
- The elimination of forced and compulsory labor,
- The abolition of child labor, and
- The elimination of discrimination in the workplace.
In addition, the Declaration cites among its objectives and
affirmations of fundamental rights the elimination of all
forms of forced or compulsory labor, and the effective
abolition of child labor.
CERES
CERES is a Massachusetts-based coalition of investment funds,
environmental organizations, and public interest groups
formed in 1988, and includes companies that have committed to
continuous environmental improvement and socially responsible
investing. CERES has been particularly active in the areas
of corporate governance, global warming, and greenhouse gas
David Felderstein
Date: 4/16/04 Page 4
and other emissions.
Global Reporting Initiative (GRI)
Jointly founded in 1997 by CERES and the United Nations
Environment Program, GRI is now an independent institution
that develops and disseminates globally applicable
Sustainability Reporting Guidelines. Sustainability
reporting is a process for publicly disclosing an
organization's economic, environmental, and social
performance. It is used to track corporate and
organizational progress against performance goals not only
for economic achievements, but for environmental protection
and social well-being. The Guidelines have been adopted
voluntarily by organizations for reporting on the economic,
environmental, and social dimensions of their activities,
products, and services.
David Felderstein
Date: 4/16/04 Page 5
3) ARGUMENTS IN SUPPORT
According to the sponsor:
"As the business activities of multinational corporations
extend across the globe, the practices of these
corporations increasingly affect the environment, public
health, labor and human rights of communities everywhere.
California, as the 6th largest economy in the world,
contributes significant financial and labor resources to
the global market. As such, California consumers and
investors potentially have tremendous influence on
worldwide environmental and public health practices.
Unfortunately, shareholders and citizens have little or no
access to the overseas environmental, human rights and
labor practices of corporations as this critical
information is not publicly disclosed, even when
corporations are violating human rights or are harmful to
communities and the environment.
PERS and STRS are the largest and third largest pension
funds in the nation, with combined assets of $250 billion.
These assets give the California pension funds the ability
to shape corporate practices through the influence of
markets, while simultaneously improving financial
performance: studies have shown both financial as well as
non-financial information to have significant impacts on
corporate earnings potential. Furthermore, the ability of
investors to access this information is vital to making
sound investment decisions. For the California pension
plans to use the market to both ensure financial returns
and influence corporate practices they must have the power
to ask questions about those practices, command responses,
and disclose them to investment officers and the public."
4) Legislative History
a) SB 1245 (Hayden), Chapter 216 of 1999 , required the State
Treasurer, PERS and STRS to monitor and report to the
Legislature on pension fund investments in companies doing
business in California and their affiliates, that owe
compensation to victims of slave and forced labor from 1929
to 1945.
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Date: 4/16/04 Page 6
b) SB 105 (Burton), Chapter 341 of 1999 , required PERS and
STRS to investigate and report to the Legislature on the
extent of compliance of American and international companies
investing in Northern Ireland, with laws of Northern Ireland
and related principles of nondiscrimination in employment and
freedom of workplace opportunity.
David Felderstein
Date: 4/16/04 Page 7
5) SUPPORT :
Planning and Conservation League
Environment California
Friends of the Earth
Public Citizen
California School Employees Association
California Teachers Association
California Federation of Teachers
Calvert Group, Ltd
California Teamsters Public Affairs Council
Sierra Club California
6) OPPOSITION :
None to date
David Felderstein
Date: 4/16/04 Page 8
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David Felderstein
Date: 4/16/04 Page 9