SENATE BILL No. 252
Introduced by Senators Gonzalez, Stern, and Wiener
January 30, 2023
An act to amend Section 16642 of, and to add Section 7513.76 to, the Government Code, relating to public retirement systems. legislative counsel’s digest
SB 252, as introduced, Gonzalez. Public retirement systems: fossil fuels: divestment.
The California Constitution grants the retirement board of a public employee retirement system plenary authority and fiduciary responsibility for in vestment of mone ys and administration of the retirement fund and system. These pro visions qualify this grant of powers by reserving to the Le gislature the authority to prohibit investments if it is in the public interest and the prohibition satisfies standards of fiduciary care and loyalty required of a retirement board.
Existing law prohibits the boards of the Public Employees’ Retirement System and the State Teachers’ Retirement System from making ne w investments or rene wing e xisting in vestments of public emplo yee retirement funds in a thermal coal compan y, as defined. Existing la w requires the boards to liquidate investments in thermal coal companies on or before July 1, 2017, and requires the boards, in making a determination to liquidate in vestments, to constructively engage with thermal coal companies to establish whether the companies are transitioning their business models to adapt to clean energy generation.
Existing law provides that it does not require a board to take any action unless the board determines in good f aith that the action is consistent with the board’s fiduciary responsibilities established in the California Constitution.
99 This bill w ould prohibit the boards of the Public Emplo yees’ Retirement System and the State Teachers’ Retirement System from making new investments or rene wing existing investments of public employee retirement funds in a fossil fuel compan y, as defined. The bill would require the boards to liquidate in vestments in a fossil fuel company on or before July 1, 2030. The bill would temporarily suspend the abo ve-described liquidation pro vision upon a good f aith determination by the board that certain conditions materially impact normal market mechanisms for pricing assets, as specified, and would make this suspension pro vision inoperative on January 1, 2035. The bill would provide that it does not require a board to tak e any action unless the board determines in good f aith that the action is consistent with the board’s fiduciary responsibilities established in the California Constitution.
This bill would require the boards, commencing February 1, 2025, and annually thereafter , to file a report with the Le gislature and the Governor, containing specified information, including a list of fossil fuel companies of which the board has liquidated their in vestments.
The bill w ould pro vide 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’s requirements, as specified.
Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.
The people of the State of California do enact as follows:
line 1 SECTION 1. Section 7513.76 is added to the Government line 2 Code, to read:
line 3 7513.76. (a) The Le gislature finds and declares all of the line 4 following:
line 5 (1) The combustion of coal, oil, and natural gas, known as fossil line 6 fuels, is the single largest contributor to global climate change. line 7 (2) Climate change affects all parts of the California economy line 8 and environment, and the Legislature has adopted numerous laws line 9 to mitigate greenhouse gas emissions and to adapt to a changing line 10 climate.
line 11 (3) Fossil fuel companies’ plans to e xpand production, public line 12 relations campaigns, and ef forts to obstruct climate stabilization 99 — 2 — SB 252
line 1 policies are incompatible with California’s climate goals, and our line 2 obligation to current and future generations.
line 3 (4) The production of fossil fuels and the ef fects of climate line 4 change resulting from the use of fossil fuels all lead to line 5 disproportionate adverse impacts on low-income communities and line 6 communities of color.
line 7 (5) A transition a way from fossil fuels to clean ener gy will line 8 create greater emplo yment, support the economy , and impro ve line 9 public health.
line 10 (6) The purpose of this section is to require the Public line 11 Employees’ Retirement System and the State Teachers’ Retirement line 12 System, consistent with, and not in violation of, their fiduciary line 13 responsibilities, to di vest their holdings of fossil fuel compan y line 14 investments as one part of the state’s broader efforts to decarbonize line 15 the California economy and to transition to clean, pollution-free line 16 energy resources.
line 17 (b) As used in this section, the following definitions apply:
line 18 (1) “Board” means the Board of Administration of the Public line 19 Employees’ Retirement System or the Teachers’ Retirement Board line 20 of the State Teachers’ Retirement System, as applicable. line 21 (2) “Company” means a sole proprietorship, or ganization, line 22 association, corporation, partnership, v enture, or other entity , or line 23 its subsidiary or affiliate, that exists for profitmaking purposes or line 24 to otherwise secure economic advantage.
line 25 (3) “Investment” means the purchase, ownership, or control of line 26 publicly issued stock, corporate bonds, or other debt instruments line 27 issued by a compan y. “In vestments” also includes purchase, line 28 ownership, or control of mutual funds and exchange-traded funds, line 29 unless the board is satisfied on reasonable grounds that a mutual line 30 fund or e xchange-traded fund is unlik ely to ha ve in e xcess of 2 line 31 percent of its assets, a veraged annually , directly or indirectly line 32 invested in fossil fuel companies.
line 33 (4) “Public emplo yee retirement funds” means the Public line 34 Employees’ Retirement Fund described in Section 20062 of this line 35 code, and the Teachers’ Retirement Fund described in Section line 36 22167 of the Education Code.
line 37 (5) “Fossil fuel” means petroleum oil, natural gas, and thermal line 38 coal. Thermal coal is coal used to generate electricity, such as that line 39 which is burned to create steam to run turbines. Thermal coal does line 40 not mean metallurgical coal or coking coal used to produce steel. 99 SB 252 — 3 —
line 1 (6) “Fossil fuel company” means one of the 200 largest publicly line 2 traded fossil fuel companies, as established by carbon content in line 3 the companies’ proven oil, gas, and coal reserves. line 4 (c) The board shall not make additional or new investments or line 5 renew existing investments of public emplo yee retirement funds line 6 in a fossil fuel company.
line 7 (d) (1) The board shall liquidate in vestments in a fossil fuel line 8 company on or before July 1, 2030.
line 9 (2) Notwithstanding paragraph (1), this subdi vision shall be line 10 suspended upon a good f aith determination by the board that an line 11 act of God, w ar, or other unforeseeable e vent creates conditions line 12 that materially impact normal market mechanisms for pricing assets line 13 and shall only be reinstated upon a subsequent good faith finding line 14 of the board that market conditions have substantially returned to line 15 normal e x-ante. Upon such a finding, the board shall ha ve six line 16 months to liquidate an y remaining in vestments in a fossil fuel line 17 company.
line 18 (3) Paragraph (2) shall remain in ef fect only until January 1, line 19 2035, and as of that date is inoperative.
line 20 (e) (1) Commencing February 1, 2025, and annually on line 21 February 1 thereafter, the board shall create a report that includes line 22 the following:
line 23 (A) A list of fossil fuel companies of which the board has line 24 liquidated its investments pursuant to subdivision (d). line 25 (B) A list of fossil fuel companies with which the board still line 26 has not liquidated its investments.
line 27 (C) A list of fossil fuel companies of which the board has not line 28 liquidated its in vestments as a result of a determination made line 29 pursuant to subdivision (f) that a sale or transfer of investments is line 30 inconsistent with the fiduciary responsibilities of the board as line 31 described in Section 17 of Article XVI of the California line 32 Constitution and the board’ s findings adopted in support of that line 33 determination.
line 34 (D) An analysis of methods and opportunities to rapidly and line 35 effectively reduce dependence on fossil fuels and transition to line 36 alternative ener gy sources in a realistic timeframe that a voids line 37 negatively contrib uting to economic conditions particularly line 38 damaging to public employee retirement funds and to overall net line 39 employment earnings of the state’s workforce.
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line 1 (2) The board shall submit the report to the Le gislature, in line 2 compliance with Section 9795, and to the Governor, and shall post line 3 the report on the board’s internet website.
line 4 (f) Nothing in this section shall require a board to tak e action line 5 as described in this section unless the board determines in good line 6 faith that the action described in this section is consistent with the line 7 fiduciary responsibilities of the board described in Section 17 of line 8 Article XVI of the California Constitution.
line 9 SEC. 2. Section 16642 of the Government Code, as amended line 10 by Section 3 of Chapter 459 of the Statutes of 2019, is amended line 11 to read:
line 12 16642. (a) Present, future, and former board members of the line 13 Public Emplo yees’ Retirement System or the State Teachers’ line 14 Retirement System, jointly and indi vidually, state officers and line 15 employees, research firms described in subdivision (d) of Section line 16 7513.6, and investment managers under contract with the Public line 17 Employees’ Retirement System or the State Teachers’ Retirement line 18 System shall be indemnified from the General Fund and held line 19 harmless by the State of California from all claims, demands, suits, line 20 actions, damages, judgments, costs, char ges, and e xpenses, line 21 including court costs and attorney’s fees, and against all liability, line 22 losses, and damages of any nature whatsoever that these present, line 23 future, or former board members, officers, emplo yees, research line 24 firms as described in subdivision (d) of Section 7513.6, or contract line 25 investment managers shall or may at an y time sustain by reason line 26 of an y decision to restrict, reduce, or eliminate in vestments line 27 pursuant to Sections 7513.6, 7513.7, 7513.74, and 7513.75. line 28 7513.75, and 7513.76.
line 29 (b) This section shall remain in effect only until Section 7513.74 line 30 is repealed, and as of that date is repealed.
line 31 SEC. 3. Section 16642 of the Government Code, as added by line 32 Section 4 of Chapter 459 of the Statutes of 2019, is amended to line 33 read:
line 34 16642. (a) Present, future, and former board members of the line 35 Public Emplo yees’ Retirement System or the State Teachers’ line 36 Retirement System, jointly and indi vidually, state officers and line 37 employees, research firms described in subdivision (d) of Section line 38 7513.6, and investment managers under contract with the Public line 39 Employees’ Retirement System or the State Teachers’ Retirement line 40 System shall be indemnified from the General Fund and held 99 SB 252 — 5 —
line 1 harmless by the State of California from all claims, demands, suits, line 2 actions, damages, judgments, costs, char ges, and e xpenses, line 3 including court costs and attorney’s fees, and against all liability, line 4 losses, and damages of any nature whatsoever that these present, line 5 future, or former board members, officers, emplo yees, research line 6 firms as described in subdivision (d) of Section 7513.6, or contract line 7 investment managers shall or may at an y time sustain by reason line 8 of an y decision to restrict, reduce, or eliminate in vestments line 9 pursuant to Sections 7513.6, 7513.7, and 7513.75. 7513.75, and line 10 7513.76.
line 11 (b) This section shall become operati ve upon the repeal of line 12 Section 7513.74.
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99 — 6 — SB 252
CITY OF HUNTINGTON BEACH
2000 MAIN STREET, HUNTINGTON BEACH, CALIFORNIA 92648-2702
TONY STRICKLAND
MAYOR
Fax 714.536.5233 Page 1 of 1 Office: 714.536.5553
May 3, 2023
The Honorable Lena Gonzalez California State Senate
33rd District 1021 O Street, Suite 7720
Sacramento, CA 95814
RE: OPPOSE SB 252 (Gonzalez) – Public retirement systems: fossil fuels: divestment
Dear Senator Gonzalez,
On behalf of public employees and teachers, as well as state taxpayers, the ACC -OC Board of Directors voted to oppose SB 252. As introduced, this bill would prohibit the California Public Employees’ Retirement System (CalPERS) and the State Teachers’ Retirement System (STRS) from making new investments or renewing existing investments of publi c employee retirement funds in fossil fuel companies. SB 252 would further require the boards to liquidate investments in a fossil fuel company on or before July 1, 2030. Lastly, the bill would require a report to the Legislature and the Governor beginning in 2025 to provide information on fossil fuel companies where the board has liquidated their investments.
It is important that CalPERS has the flexibility needed to exercise their fiduci ary duties on behalf of public agencies and public employees in California. By limiting their ability to invest in specific industries to achieve other policy goals, the resulting lower returns for these retirement systems destabilizes those systems and requires a further infusion of tax dollars to make up the difference.
Rather than destabilize state retirement systems serving public employees, the State Legislature should work with industries of concern to achieve meaningful changes that benefit all Californians.
Should you have any questions about ACC -OC’s position on SB 252, please contact Alisa Backstrom, City Treasurer, at 714-536-5299 or at [email protected].
Sincerely,
Tony Strickland
Mayor
City of Huntington Beach
CC: Senator Janet Nguyen
Senator Dave Min
Assembly Member Diane Dixon
Assembly Member Tri Ta
ACC-OC Board of Directors (via email)
Bismarck Obando, Director of Public Affairs ([email protected]) League of California Cities ([email protected])