CALIFORNIA LEGISLATURE 20172018 REGULAR SESSION Senate Bill No. 560Introduced by Senator AllenFebruary 17, 2017 An act to add Section 7510.5 to the Government Code, relating to public retirement systems. LEGISLATIVE COUNSEL'S DIGESTSB 560, as introduced, Allen. Public retirement systems: investments: financial climate risk.The California Constitution requires members of the retirement board of a public pension or retirement system to 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. Existing statutory law establishes various public employee retirement systems and provides for the administration of the State Teachers Retirement System by the Teachers Retirement Board and for the administration of the Public Employees Retirement System, among other public employee retirement systems, by the Board of Administration of the Public Employees Retirement System.This bill, on and after January 1, 2019, would require those boards to consider the financial climate risk, as defined, of each investment, or potential investment, as part of their discharge of their fiduciary duties with respect to the investment. The bill, by January 1, 2020, and annually thereafter, would require the boards to report on the financial climate risks of their investments, including the carbon footprint of the investments, as specified. The bill would make related legislative findings and declarations.Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NO Bill TextThe people of the State of California do enact as follows:SECTION 1. The Legislature finds and declares as follows:(a) Climate change is a long-term problem that will affect our environment, health, and economy for decades to come.(b) Effects of global climate change that scientists predicted in the past are already occurring sea ice has been lost, sea levels are rising at accelerated rates, and longer, more intense heat waves and extreme weather events are occurring.(c) As global temperatures to continue to rise, these effects will likely accelerate. Heat waves, droughts, and hurricanes are all projected to grow in both frequency and intensity as climate change progresses.(d) The financial sector is not insulated from the adverse effects of climate change.(e) California is a global leader in addressing climate change and has consistently striven to protect the physical, social, and economic resources of all Californians, as most recently exemplified by Senate Bills 32 and 350 of the 201516 Regular Session.(f) Climate change presents an array of material financial risks, including transition risk, physical risk, and litigation risk, that reasonable investors must take into account when making investment decisions. Failure to acknowledge and address these risks will result in exposure to subsequent liabilities and financial risk.(g) If global temperature rise is to be limited to no more than 2 degrees Celsius, or the aspirational target of 1.5 degrees proposed in the COP 21 agreement now in effect, governments must act to limit warming and hasten the transition to a low-carbon economy by halting the extraction and development of carbon reserves. This regulatory risk will affect major sectors of the global economy.(h) In the retirement system context, these risks are especially salient. Retirement boards are duty-bound to administer retirement funds solely in the interest of system participants and their beneficiaries. In order to ensure sufficient funding of both current and future retirees financial benefits, retirement boards must consider both short-term and long-term effects and risks of retirement fund investments.(i) If climate change and carbon emissions continue on their current trajectories, both acute and chronic weather-related activity will greatly compromise the ability of businesses that do not account for these changes to reliably generate returns. Pension funds influence in the markets can induce firms to accurately report their carbon risk to the public.(j) Given the potentially catastrophic consequences of climate change, the documented social and economic cost of carbon, and the emerging body of literature on the material financial risks of climate change, retirement boards simply cannot disregard financial climate risks. SEC. 2. Section 7510.5 is added to the Government Code, to read:7510.5. (a) For purposes of this section, the following definitions apply:(1) Board means the Board of Administration of the Public Employees Retirement System or the Teachers Retirement Board.(2) Financial climate risk means material financial risk posed to an investment by the effects of the changing climate, including, but not limited to, intense storms, rising sea levels, higher global temperatures, economic damages from carbon emissions, and other financial risks due to public policies to address climate change, shifting consumer attitudes, changing economics of traditional carbon-intense industries, and other transition risks.(b) On and after January 1, 2019, the board shall consider the financial climate risk of each investment, or potential investment, as part of the boards discharge of its fiduciary duties with respect to the investment.(c) By January 1, 2020, and annually thereafter, the board shall report on the financial climate risks of its investments, including the carbon footprint of the investments computed using the Greenhouse Gas Protocol of the World Resources Institute, including Scope 3.
CALIFORNIA LEGISLATURE 20172018 REGULAR SESSION Senate Bill No. 560Introduced by Senator AllenFebruary 17, 2017 An act to add Section 7510.5 to the Government Code, relating to public retirement systems. LEGISLATIVE COUNSEL'S DIGESTSB 560, as introduced, Allen. Public retirement systems: investments: financial climate risk.The California Constitution requires members of the retirement board of a public pension or retirement system to 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. Existing statutory law establishes various public employee retirement systems and provides for the administration of the State Teachers Retirement System by the Teachers Retirement Board and for the administration of the Public Employees Retirement System, among other public employee retirement systems, by the Board of Administration of the Public Employees Retirement System.This bill, on and after January 1, 2019, would require those boards to consider the financial climate risk, as defined, of each investment, or potential investment, as part of their discharge of their fiduciary duties with respect to the investment. The bill, by January 1, 2020, and annually thereafter, would require the boards to report on the financial climate risks of their investments, including the carbon footprint of the investments, as specified. The bill would make related legislative findings and declarations.Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NO
CALIFORNIA LEGISLATURE 20172018 REGULAR SESSION
Senate Bill No. 560
Introduced by Senator AllenFebruary 17, 2017
Introduced by Senator Allen
February 17, 2017
An act to add Section 7510.5 to the Government Code, relating to public retirement systems.
LEGISLATIVE COUNSEL'S DIGEST
## LEGISLATIVE COUNSEL'S DIGEST
SB 560, as introduced, Allen. Public retirement systems: investments: financial climate risk.
The California Constitution requires members of the retirement board of a public pension or retirement system to 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. Existing statutory law establishes various public employee retirement systems and provides for the administration of the State Teachers Retirement System by the Teachers Retirement Board and for the administration of the Public Employees Retirement System, among other public employee retirement systems, by the Board of Administration of the Public Employees Retirement System.This bill, on and after January 1, 2019, would require those boards to consider the financial climate risk, as defined, of each investment, or potential investment, as part of their discharge of their fiduciary duties with respect to the investment. The bill, by January 1, 2020, and annually thereafter, would require the boards to report on the financial climate risks of their investments, including the carbon footprint of the investments, as specified. The bill would make related legislative findings and declarations.
The California Constitution requires members of the retirement board of a public pension or retirement system to 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. Existing statutory law establishes various public employee retirement systems and provides for the administration of the State Teachers Retirement System by the Teachers Retirement Board and for the administration of the Public Employees Retirement System, among other public employee retirement systems, by the Board of Administration of the Public Employees Retirement System.
This bill, on and after January 1, 2019, would require those boards to consider the financial climate risk, as defined, of each investment, or potential investment, as part of their discharge of their fiduciary duties with respect to the investment. The bill, by January 1, 2020, and annually thereafter, would require the boards to report on the financial climate risks of their investments, including the carbon footprint of the investments, as specified. The bill would make related legislative findings and declarations.
## Digest Key
## Bill Text
The people of the State of California do enact as follows:SECTION 1. The Legislature finds and declares as follows:(a) Climate change is a long-term problem that will affect our environment, health, and economy for decades to come.(b) Effects of global climate change that scientists predicted in the past are already occurring sea ice has been lost, sea levels are rising at accelerated rates, and longer, more intense heat waves and extreme weather events are occurring.(c) As global temperatures to continue to rise, these effects will likely accelerate. Heat waves, droughts, and hurricanes are all projected to grow in both frequency and intensity as climate change progresses.(d) The financial sector is not insulated from the adverse effects of climate change.(e) California is a global leader in addressing climate change and has consistently striven to protect the physical, social, and economic resources of all Californians, as most recently exemplified by Senate Bills 32 and 350 of the 201516 Regular Session.(f) Climate change presents an array of material financial risks, including transition risk, physical risk, and litigation risk, that reasonable investors must take into account when making investment decisions. Failure to acknowledge and address these risks will result in exposure to subsequent liabilities and financial risk.(g) If global temperature rise is to be limited to no more than 2 degrees Celsius, or the aspirational target of 1.5 degrees proposed in the COP 21 agreement now in effect, governments must act to limit warming and hasten the transition to a low-carbon economy by halting the extraction and development of carbon reserves. This regulatory risk will affect major sectors of the global economy.(h) In the retirement system context, these risks are especially salient. Retirement boards are duty-bound to administer retirement funds solely in the interest of system participants and their beneficiaries. In order to ensure sufficient funding of both current and future retirees financial benefits, retirement boards must consider both short-term and long-term effects and risks of retirement fund investments.(i) If climate change and carbon emissions continue on their current trajectories, both acute and chronic weather-related activity will greatly compromise the ability of businesses that do not account for these changes to reliably generate returns. Pension funds influence in the markets can induce firms to accurately report their carbon risk to the public.(j) Given the potentially catastrophic consequences of climate change, the documented social and economic cost of carbon, and the emerging body of literature on the material financial risks of climate change, retirement boards simply cannot disregard financial climate risks. SEC. 2. Section 7510.5 is added to the Government Code, to read:7510.5. (a) For purposes of this section, the following definitions apply:(1) Board means the Board of Administration of the Public Employees Retirement System or the Teachers Retirement Board.(2) Financial climate risk means material financial risk posed to an investment by the effects of the changing climate, including, but not limited to, intense storms, rising sea levels, higher global temperatures, economic damages from carbon emissions, and other financial risks due to public policies to address climate change, shifting consumer attitudes, changing economics of traditional carbon-intense industries, and other transition risks.(b) On and after January 1, 2019, the board shall consider the financial climate risk of each investment, or potential investment, as part of the boards discharge of its fiduciary duties with respect to the investment.(c) By January 1, 2020, and annually thereafter, the board shall report on the financial climate risks of its investments, including the carbon footprint of the investments computed using the Greenhouse Gas Protocol of the World Resources Institute, including Scope 3.
The people of the State of California do enact as follows:
## The people of the State of California do enact as follows:
SECTION 1. The Legislature finds and declares as follows:(a) Climate change is a long-term problem that will affect our environment, health, and economy for decades to come.(b) Effects of global climate change that scientists predicted in the past are already occurring sea ice has been lost, sea levels are rising at accelerated rates, and longer, more intense heat waves and extreme weather events are occurring.(c) As global temperatures to continue to rise, these effects will likely accelerate. Heat waves, droughts, and hurricanes are all projected to grow in both frequency and intensity as climate change progresses.(d) The financial sector is not insulated from the adverse effects of climate change.(e) California is a global leader in addressing climate change and has consistently striven to protect the physical, social, and economic resources of all Californians, as most recently exemplified by Senate Bills 32 and 350 of the 201516 Regular Session.(f) Climate change presents an array of material financial risks, including transition risk, physical risk, and litigation risk, that reasonable investors must take into account when making investment decisions. Failure to acknowledge and address these risks will result in exposure to subsequent liabilities and financial risk.(g) If global temperature rise is to be limited to no more than 2 degrees Celsius, or the aspirational target of 1.5 degrees proposed in the COP 21 agreement now in effect, governments must act to limit warming and hasten the transition to a low-carbon economy by halting the extraction and development of carbon reserves. This regulatory risk will affect major sectors of the global economy.(h) In the retirement system context, these risks are especially salient. Retirement boards are duty-bound to administer retirement funds solely in the interest of system participants and their beneficiaries. In order to ensure sufficient funding of both current and future retirees financial benefits, retirement boards must consider both short-term and long-term effects and risks of retirement fund investments.(i) If climate change and carbon emissions continue on their current trajectories, both acute and chronic weather-related activity will greatly compromise the ability of businesses that do not account for these changes to reliably generate returns. Pension funds influence in the markets can induce firms to accurately report their carbon risk to the public.(j) Given the potentially catastrophic consequences of climate change, the documented social and economic cost of carbon, and the emerging body of literature on the material financial risks of climate change, retirement boards simply cannot disregard financial climate risks.
SECTION 1. The Legislature finds and declares as follows:(a) Climate change is a long-term problem that will affect our environment, health, and economy for decades to come.(b) Effects of global climate change that scientists predicted in the past are already occurring sea ice has been lost, sea levels are rising at accelerated rates, and longer, more intense heat waves and extreme weather events are occurring.(c) As global temperatures to continue to rise, these effects will likely accelerate. Heat waves, droughts, and hurricanes are all projected to grow in both frequency and intensity as climate change progresses.(d) The financial sector is not insulated from the adverse effects of climate change.(e) California is a global leader in addressing climate change and has consistently striven to protect the physical, social, and economic resources of all Californians, as most recently exemplified by Senate Bills 32 and 350 of the 201516 Regular Session.(f) Climate change presents an array of material financial risks, including transition risk, physical risk, and litigation risk, that reasonable investors must take into account when making investment decisions. Failure to acknowledge and address these risks will result in exposure to subsequent liabilities and financial risk.(g) If global temperature rise is to be limited to no more than 2 degrees Celsius, or the aspirational target of 1.5 degrees proposed in the COP 21 agreement now in effect, governments must act to limit warming and hasten the transition to a low-carbon economy by halting the extraction and development of carbon reserves. This regulatory risk will affect major sectors of the global economy.(h) In the retirement system context, these risks are especially salient. Retirement boards are duty-bound to administer retirement funds solely in the interest of system participants and their beneficiaries. In order to ensure sufficient funding of both current and future retirees financial benefits, retirement boards must consider both short-term and long-term effects and risks of retirement fund investments.(i) If climate change and carbon emissions continue on their current trajectories, both acute and chronic weather-related activity will greatly compromise the ability of businesses that do not account for these changes to reliably generate returns. Pension funds influence in the markets can induce firms to accurately report their carbon risk to the public.(j) Given the potentially catastrophic consequences of climate change, the documented social and economic cost of carbon, and the emerging body of literature on the material financial risks of climate change, retirement boards simply cannot disregard financial climate risks.
SECTION 1. The Legislature finds and declares as follows:
### SECTION 1.
(a) Climate change is a long-term problem that will affect our environment, health, and economy for decades to come.
(b) Effects of global climate change that scientists predicted in the past are already occurring sea ice has been lost, sea levels are rising at accelerated rates, and longer, more intense heat waves and extreme weather events are occurring.
(c) As global temperatures to continue to rise, these effects will likely accelerate. Heat waves, droughts, and hurricanes are all projected to grow in both frequency and intensity as climate change progresses.
(d) The financial sector is not insulated from the adverse effects of climate change.
(e) California is a global leader in addressing climate change and has consistently striven to protect the physical, social, and economic resources of all Californians, as most recently exemplified by Senate Bills 32 and 350 of the 201516 Regular Session.
(f) Climate change presents an array of material financial risks, including transition risk, physical risk, and litigation risk, that reasonable investors must take into account when making investment decisions. Failure to acknowledge and address these risks will result in exposure to subsequent liabilities and financial risk.
(g) If global temperature rise is to be limited to no more than 2 degrees Celsius, or the aspirational target of 1.5 degrees proposed in the COP 21 agreement now in effect, governments must act to limit warming and hasten the transition to a low-carbon economy by halting the extraction and development of carbon reserves. This regulatory risk will affect major sectors of the global economy.
(h) In the retirement system context, these risks are especially salient. Retirement boards are duty-bound to administer retirement funds solely in the interest of system participants and their beneficiaries. In order to ensure sufficient funding of both current and future retirees financial benefits, retirement boards must consider both short-term and long-term effects and risks of retirement fund investments.
(i) If climate change and carbon emissions continue on their current trajectories, both acute and chronic weather-related activity will greatly compromise the ability of businesses that do not account for these changes to reliably generate returns. Pension funds influence in the markets can induce firms to accurately report their carbon risk to the public.
(j) Given the potentially catastrophic consequences of climate change, the documented social and economic cost of carbon, and the emerging body of literature on the material financial risks of climate change, retirement boards simply cannot disregard financial climate risks.
SEC. 2. Section 7510.5 is added to the Government Code, to read:7510.5. (a) For purposes of this section, the following definitions apply:(1) Board means the Board of Administration of the Public Employees Retirement System or the Teachers Retirement Board.(2) Financial climate risk means material financial risk posed to an investment by the effects of the changing climate, including, but not limited to, intense storms, rising sea levels, higher global temperatures, economic damages from carbon emissions, and other financial risks due to public policies to address climate change, shifting consumer attitudes, changing economics of traditional carbon-intense industries, and other transition risks.(b) On and after January 1, 2019, the board shall consider the financial climate risk of each investment, or potential investment, as part of the boards discharge of its fiduciary duties with respect to the investment.(c) By January 1, 2020, and annually thereafter, the board shall report on the financial climate risks of its investments, including the carbon footprint of the investments computed using the Greenhouse Gas Protocol of the World Resources Institute, including Scope 3.
SEC. 2. Section 7510.5 is added to the Government Code, to read:
### SEC. 2.
7510.5. (a) For purposes of this section, the following definitions apply:(1) Board means the Board of Administration of the Public Employees Retirement System or the Teachers Retirement Board.(2) Financial climate risk means material financial risk posed to an investment by the effects of the changing climate, including, but not limited to, intense storms, rising sea levels, higher global temperatures, economic damages from carbon emissions, and other financial risks due to public policies to address climate change, shifting consumer attitudes, changing economics of traditional carbon-intense industries, and other transition risks.(b) On and after January 1, 2019, the board shall consider the financial climate risk of each investment, or potential investment, as part of the boards discharge of its fiduciary duties with respect to the investment.(c) By January 1, 2020, and annually thereafter, the board shall report on the financial climate risks of its investments, including the carbon footprint of the investments computed using the Greenhouse Gas Protocol of the World Resources Institute, including Scope 3.
7510.5. (a) For purposes of this section, the following definitions apply:(1) Board means the Board of Administration of the Public Employees Retirement System or the Teachers Retirement Board.(2) Financial climate risk means material financial risk posed to an investment by the effects of the changing climate, including, but not limited to, intense storms, rising sea levels, higher global temperatures, economic damages from carbon emissions, and other financial risks due to public policies to address climate change, shifting consumer attitudes, changing economics of traditional carbon-intense industries, and other transition risks.(b) On and after January 1, 2019, the board shall consider the financial climate risk of each investment, or potential investment, as part of the boards discharge of its fiduciary duties with respect to the investment.(c) By January 1, 2020, and annually thereafter, the board shall report on the financial climate risks of its investments, including the carbon footprint of the investments computed using the Greenhouse Gas Protocol of the World Resources Institute, including Scope 3.
7510.5. (a) For purposes of this section, the following definitions apply:(1) Board means the Board of Administration of the Public Employees Retirement System or the Teachers Retirement Board.(2) Financial climate risk means material financial risk posed to an investment by the effects of the changing climate, including, but not limited to, intense storms, rising sea levels, higher global temperatures, economic damages from carbon emissions, and other financial risks due to public policies to address climate change, shifting consumer attitudes, changing economics of traditional carbon-intense industries, and other transition risks.(b) On and after January 1, 2019, the board shall consider the financial climate risk of each investment, or potential investment, as part of the boards discharge of its fiduciary duties with respect to the investment.(c) By January 1, 2020, and annually thereafter, the board shall report on the financial climate risks of its investments, including the carbon footprint of the investments computed using the Greenhouse Gas Protocol of the World Resources Institute, including Scope 3.
7510.5. (a) For purposes of this section, the following definitions apply:
(1) Board means the Board of Administration of the Public Employees Retirement System or the Teachers Retirement Board.
(2) Financial climate risk means material financial risk posed to an investment by the effects of the changing climate, including, but not limited to, intense storms, rising sea levels, higher global temperatures, economic damages from carbon emissions, and other financial risks due to public policies to address climate change, shifting consumer attitudes, changing economics of traditional carbon-intense industries, and other transition risks.
(b) On and after January 1, 2019, the board shall consider the financial climate risk of each investment, or potential investment, as part of the boards discharge of its fiduciary duties with respect to the investment.
(c) By January 1, 2020, and annually thereafter, the board shall report on the financial climate risks of its investments, including the carbon footprint of the investments computed using the Greenhouse Gas Protocol of the World Resources Institute, including Scope 3.