As Amended by House Committee
Session of 2023
HOUSE BILL No. 2436
By Committee on Appropriations
2-22
AN ACT concerning environmental, social and governance criteria
involving public contracts and investments; enacting the Kansas public
investments and contracts protection act; prohibiting the state or a
political subdivision from giving preferential treatment to or
discriminating against companies based on environmental, social and
governance criteria in procuring or letting contracts; requiring
fiduciaries of the Kansas public employees retirement system to act
solely in the financial interest of participants and beneficiaries of the
system; restricting state agencies from adopting environmental, social
and governance criteria or requiring any person or business to operate
in accordance with such criteria; providing for enforcement of such act
by the attorney general; indemnifying the Kansas public employees
retirement system with respect to actions taken in compliance with
such act; amending K.S.A. 2022 Supp. 74-4921 and repealing the
existing section.
Be it enacted by the Legislature of the State of Kansas:
New Section 1. (a) The provisions of sections 1 through 5 6, and
amendments thereto, shall be known and may be cited as the Kansas
public investments and contracts protection act.
(b) As used in this act:
(1) "Act" means the Kansas public investments and contracts
protection act.
(2) "Board" means the board of trustees of the Kansas public
employees retirement system.
(3) "Company" means any organization, association, corporation,
partnership, joint venture, limited partnership, limited liability partnership,
limited liability company or other entity of business association, including
a wholly owned subsidiary, majority-owned subsidiary, parent company or
affiliate of such entities or business associations that exists for the purpose
of making a profit.
(4) "Environmental, social and governance criteria" means a
preferential treatment or a discrimination evaluation conducted by the
state, any agency of the state, any political subdivision of the state, or any
instrumentality thereof, that considers whether a company meets or fails to
meet one or more of the following criteria:
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(A) Engaging in the exploration, production, utilization,
transportation, sale or manufacturing of:
(i) Fossil fuel-based energy;
(ii) nuclear energy; or
(iii) any other natural resource;
(B) engaging in the production of agriculture;
(C) engaging in the production of lumber;
(D) engaging in mining;
(E) emitting greenhouse gases or not disclosing or offsetting such
greenhouse gas emissions;
(F) engaging in the manufacturing, distribution or sale of firearms,
firearms accessories, ammunition or ammunition components;
(G) having a governing corporate board or other officers whose race,
ethnicity, sex or sexual orientation meets or does not meet any criterion;
(H) facilitating or assisting or not facilitating or assisting employees
in obtaining abortions or gender reassignment services; and
(I) doing business with any company described by subparagraphs (A)
through (H).
(5) "Fiduciary" means any person acting on behalf of the board or
system as an investment manager, proxy advisor or contractor, including
the system's board of trustees.
(6) "Fiduciary commitment" means any evidence of a fiduciary's
purpose in managing assets as a fiduciary, including, but not limited to,
any of the following in a fiduciary's capacity as a fiduciary specifically on
assets managed on behalf of the system:
(A) Advertisements, statements, explanations, reports, letters to
clients, communications with portfolio companies, statements of principles
or commitments; or
(B) participation in, affiliation with or status as a signatory to any
coalition, initiative, joint statement of principles or agreement.
(7) (A) "Financial" means having been prudently determined by a
fiduciary to have a material effect on the financial risk or the financial
return of an investment.
(B) "Financial" does not include any action taken or factor considered
by a fiduciary with any purpose whatsoever to further social, political or
ideological interests.
(C) A fiduciary may reasonably be determined to have taken an
action or considered a factor with a purpose to further social, political or
ideological interests based upon evidence indicating such a purpose,
including, but not limited to, any fiduciary commitment to further, through
portfolio company engagement, board or shareholder votes or otherwise as
a fiduciary, any of the following beyond what controlling federal or state
law requires specifically on assets managed on behalf of the system:
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(i) Eliminating, reducing, offsetting or disclosing greenhouse gas
emissions;
(ii) instituting or assessing corporate board, employment,
composition, compensation or disclosure criteria that incorporates
characteristics protected under state law;
(iii) divesting from, limiting investment in or limiting the activities or
investments of any company for failing or not committing to meet
environmental standards or disclosures;
(iv) accessing abortion, sex or gender change or transgender surgery;
or
(v) divesting from, limiting investment in or limiting the activities or
investments of any company that engages in, facilitates or supports the
manufacture, import, distribution, marketing, advertising, sale or lawful
use of firearms, ammunition or component parts and accessories of
firearms or ammunition.
(8) "Fossil fuels" means coal, natural gas, petroleum or oil formed by
natural processes through decomposition of dead organisms.
(9) "Natural resources" means fossil fuels, minerals, metal ores or any
other nonrenewable or finite resource that cannot be readily replaced by
natural means at the speed at which it is consumed.
(10) "System" means the Kansas public employees retirement system.
New Sec. 2. (a) The state, any agency of the state, any political
subdivision of the state, or any instrumentality thereof, including the
pooled money investment board established by K.S.A. 75-4221a, and
amendments thereto, when engaged in procuring or letting contracts for
any purpose, shall ensure that bidders, offerors, contractors or
subcontractors are not given preferential treatment or discriminated against
based solely on an environmental, social and governance criteria.
(b) The state, any agency of the state, any political subdivision of the
state or any instrumentality thereof, including the pooled money
investment board established by K.S.A. 75-4221a, and amendments
thereto, shall not adopt any procurement regulation or policy that causes
any bidder, offeror, contractor or subcontractor to be given preferential
treatment or be subject to discrimination based solely on an environmental,
social and governance criteria, except as otherwise specifically permitted
or required by law.
New Sec. 3. (a) In making and supervising investments of the system,
the system and any investment manager, proxy advisor or contractor
thereof shall discharge its duties solely in the financial interest of the
participants and beneficiaries for the exclusive purposes of:
(1) Providing financial benefits to participants and their beneficiaries;
and
(2) defraying reasonable expenses of administering the system.
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(b) An investment manager, proxy advisor or contractor retained by
the system shall be subject to the same fiduciary duties as the system's
board of trustees.
(c) A fiduciary shall consider only financial factors when discharging
such fiduciary's duties with respect to the system.
(d) All shares held directly or indirectly by or on behalf of the system
or the participants and their beneficiaries shall be voted solely in the
financial interest of system participants and their beneficiaries.
(e) Unless no economically practicable alternative is available, the
system shall not grant proxy voting authority to any person who is not a
part of the system, unless such person has a practice of, and in writing
commits to, follow guidelines that match the system's obligation to act
solely upon financial factors, in which case the system may grant proxy
voting authority to such person.
(f) Unless no economically practicable alternative is available, in the
selection of any proxy advisor, the system shall give preference to a proxy
advisor service that commits in writing to engage in voting shares and
making recommendations in a strictly fiduciary manner, and without
consideration of policy objectives that are not the express policy objectives
of the system, in which case the system may engage a proxy voting
advisor.
(g) Unless no economically practicable alternative is available,
system assets shall not be entrusted to a fiduciary, unless such fiduciary
has a practice of, and in writing commits to, following guidelines, when
engaging with portfolio companies and voting shares or proxies, that
follow the system's obligation to act solely upon financial factors and not
upon policy considerations that are not the express policy objectives of the
system, in which case the system may entrust engagement and share
voting to a fiduciary.
(h) Unless no economically practicable alternative is available, an
investment manager or contractor shall not adopt a practice of following
the recommendations of a proxy advisor or other service provider, unless
such advisor or service provider has a practice of, and in writing commits
to, following proxy voting guidelines that follow the system's obligation to
act solely upon financial factors, in which case the investment manager
or contractor may follow the recommendations of a proxy or other
service advisor.
(i) All proxy votes shall be tabulated and reported annually to the
system's board of trustees and to the legislative coordinating council joint
committee on pensions, investments and benefits. For each vote, the
report shall contain a vote caption, the system's vote, the recommendation
of company management and, if applicable, the proxy advisor's
recommendation. Such reports shall be posted on the system's website for
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review by the public.
(j) Subsections (e) through (i) shall apply only to assets managed
on behalf of the system and shall not apply to alternative or real estate
investments as defined in K.S.A. 74-4921(5), and amendments thereto.
New Sec. 4. (a) As used in this section, "state agency" means an
office, board, commission, department, council, bureau, governmental
entity or other agency of state government having authority to adopt or
enforce rules and regulations.
(b) No state agency shall share or publish information, adopt policies,
adopt rules and regulations or issue guidelines for purposes of
environmental, social and governance criteria that restrict the ability of any
industry to offer products or services. No state agency shall require any
person or business to adopt or operate in accordance with environmental,
social and governance criteria.
New Sec. 5. (a) This act or any contract subject to this act may be
enforced by the attorney general.
(b) If the attorney general has reasonable cause to believe that a
person has engaged in, is engaging in or is about to engage in a violation
of this act, the attorney general may require:
(1) Such person to file on such forms as the attorney general may
prescribe a statement or report in writing, under oath, as to all the facts and
circumstances concerning the violation; and
(2) the filing of such other data and information as the attorney
general may deem necessary.
(c) In addition to any other remedies available at law or equity, an
investment manager or contractor of the system that serves as a fiduciary
and violates the provisions of section 3, and amendments thereto, shall be
obligated to pay damages to the state in an amount equal to three times all
moneys paid to the investment manager or contractor by the system for the
services of such investment manager or contractor.
New Sec. 6. In a cause of action based on an action, inaction,
decision, divestment, investment, report or other determination made
or taken in compliance with this act, without regard to whether the
person performed services for compensation, the state shall indemnify
and hold harmless the system for actual damages, court costs and
attorney fees adjudged against, and defend the system and any of its
current and former employees, members of the board or any other
officers of the system related to the act or omission on which the
damages are based.
Sec. 6. 7. K.S.A. 2022 Supp. 74-4921 is hereby amended to read as
follows: 74-4921. (1) There is hereby created in the state treasury the
Kansas public employees retirement fund. All employee and employer
contributions shall be deposited in the state treasury to be credited to the
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Kansas public employees retirement fund. The fund is a trust fund and
shall be used solely for the exclusive purpose of providing benefits to
members and member beneficiaries and defraying reasonable expenses of
administering the fund. Investment income of the fund shall be added or
credited to the fund as provided by law. All benefits payable under the
system, refund of contributions and overpayments, purchases or
investments under the law and expenses in connection with the system
unless otherwise provided by law shall be paid from the fund. The director
of accounts and reports is authorized to draw warrants on the state
treasurer and against such fund upon the filing in the director's office of
proper vouchers executed by the chairperson or the executive director of
the board. As an alternative, payments from the fund may be made by
credits to the accounts of recipients of payments in banks, savings and loan
associations and credit unions. A payment shall be so made only upon the
written authorization and direction of the recipient of payment and upon
receipt of such authorization such payments shall be made in accordance
therewith. Orders for payment of such claims may be contained on:
(a) A letter, memorandum, telegram, computer printout or similar
writing,; or
(b) any form of communication, other than voice, which is registered
upon magnetic tape, disc or any other medium designed to capture and
contain in durable form conventional signals used for the electronic
communication of messages.
(2) The board shall have the responsibility for the management of the
fund and shall discharge the board's duties with respect to the fund solely
in the interests of the members and beneficiaries of the system for the
exclusive purpose of providing benefits to members and such member's
beneficiaries and defraying reasonable expenses of administering the fund
and shall invest and reinvest moneys in the fund and acquire, retain,
manage, including the exercise of any voting rights and disposal of
investments of the fund within the limitations and according to the powers,
duties and purposes as prescribed by this section.
(3) Moneys in the fund shall be invested and reinvested to achieve the
investment objective which is preservation of the fund to provide benefits
to members and member beneficiaries, as provided by law and accordingly
providing that the moneys are as productive as possible, subject to the
standards set forth in this act. No moneys in the fund shall be invested or
reinvested if the sole or primary an investment objective is for economic
development or social purposes or objectives.
(4) In investing and reinvesting moneys in the fund and in acquiring,
retaining, managing and disposing of investments of the fund, the board
shall exercise the judgment, care, skill, prudence and diligence under the
circumstances then prevailing, which persons of prudence, discretion and
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intelligence acting in a like capacity and familiar with such matters would
use in the conduct of an enterprise of like character and with like aims by
diversifying the investments of the fund so as to minimize the risk of large
losses, unless under the circumstances it is clearly prudent not to do so,
and not in regard to speculation but in regard to the permanent disposition
of similar funds, considering the probable income as well as the probable
safety of their capital.
(5) Notwithstanding subsection (4):
(a) Total investments in common stock may be made in the amount of
up to 60% of the total book value of the fund;
(b) the board may invest or reinvest moneys of the fund in alternative
investments if the following conditions are satisfied:
(i) The total of the annual net commitment to alternative investments
does not exceed 5% of the total market value of investment assets of the
fund as measured from the end of the preceding calendar year;
(ii) if in addition to the system, there are at least two other qualified
institutional buyers, as defined by section (a)(1)(i) of rule 144A, securities
act of 1933;
(iii) the system's share in any individual alternative investment is
limited to an investment representing not more than 20% of any such
individual alternative investment;
(iv) the system has received a favorable and appropriate
recommendation from a qualified, independent expert in investment
management or analysis in that particular type of alternative investment;
(v) the alternative investment is consistent with the system's
investment policies and objectives as provided in subsection (6);
(vi) the individual alternative investment does not exceed more than
2.5% of the total alternative investments made under this subsection. If the
alternative investment is made pursuant to participation by the system in a
multi-investor pool, the 2.5% limitation contained in this subsection is
applied to the underlying individual assets of such pool and not to
investment in the pool itself. The total of such alternative investments
made pursuant to participation by the system in any one individual multi-
investor pool shall not exceed more than 20% of the total of alternative
investments made by the system pursuant to this subsection. Nothing in
this subsection requires the board to liquidate or sell the system's holdings
in any alternative investments made pursuant to participation by the
system in any one individual multi-investor pool held by the system on the
effective date of this act, unless such liquidation or sale would be in the
best interest of the members and beneficiaries of the system and be
prudent under the standards contained in this section. The 20% limitation
contained in this subsection shall not have been violated if the total of such
investment in any one individual multi-investor pool exceeds 20% of the
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total alternative investments of the fund as a result of market forces acting
to increase the value of such a multi-investor pool relative to the rest of the
system's alternative investments; however, the board shall not invest or
reinvest any moneys of the fund in any such individual multi-investor pool
until the value of such individual multi-investor pool is less than 20% of
the total alternative investments of the fund;
(vii) the board has received and considered the investment manager's
due diligence findings submitted to the board as required by subsection (6)
(c) (6);
(viii) prior to the time the alternative investment is made, the system
has in place procedures and systems to ensure that the investment is
properly monitored and investment performance is accurately measured;
and
(ix) the total of alternative investments does not exceed 15% of the
total investment assets of the fund. The 15% limitation contained in this
subsection shall not have been violated if the total of such alternative
investments exceeds 15% of the total investment assets of the fund, based
on the fund total market value, as a result of market forces acting to
increase the value of such alternative investments relative to the rest of the
system's investments. However, the board shall not invest or reinvest any
moneys of the fund in alternative investments until the total value of such
alternative investments is less than 15% of the total investment assets of
the fund based on the market value. If the total value of the alternative
investments exceeds 15% of the total investment assets of the fund, the
board shall not be required to liquidate or sell the system's holdings in any
alternative investment held by the system, unless such liquidation or sale
would be in the best interest of the members and beneficiaries of the
system and is prudent under the standards contained in this section.;
(c) for purposes of this act section, "alternative investment" includes
a broad group of investments that are not one of the traditional asset types
of public equities, fixed income, cash or real estate. Alternative
investments are generally made through limited partnership or similar
structures, are not regularly traded on nationally recognized exchanges and
thus are relatively illiquid, and exhibit lower correlations with more liquid
asset types such as stocks and bonds. Alternative investments generally
include, but are not limited to, private equity, private credit, hedge funds,
infrastructure, commodities and other investments which that have the
characteristics described in this paragraph; and
(c)(d) except as otherwise provided, the board may invest or reinvest
moneys of the fund in real estate investments if the following conditions
are satisfied:
(i) The system has received a favorable and appropriate
recommendation from a qualified, independent expert in investment
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management or analysis in that particular type of real estate investment;
(ii) the real estate investment is consistent with the system's
investment policies and objectives as provided in subsection (6); and
(iii) the system has received and considered the investment manager's
due diligence findings.
(6) (a) Subject to the objective set forth in subsection (3) and the
standards set forth in subsections (4) and (5) the board shall formulate
policies and objectives for the investment and reinvestment of moneys in
the fund and the acquisition, retention, management and disposition of
investments of the fund. Such policies and objectives shall include:
(a)(i) Specific asset allocation standards and objectives;
(b)(ii) establishment of criteria for evaluating the risk versus the
potential return on a particular investment;
(c)(iii) a requirement that all investment managers submit such
manager's due diligence findings on each investment to the board or
investment advisory committee for approval or rejection prior to making
any alternative investment;
(d)(iv) a requirement that all investment managers shall immediately
report all instances of default on investments to the board and provide the
board with recommendations and options, including, but not limited to,
curing the default or withdrawal from the investment; and
(e)(v) establishment of criteria that would be used as a guideline for
determining when no additional add-on investments or reinvestments
would be made and when the investment would be liquidated.
(b) The board shall review such policies and objectives, make
changes considered necessary or desirable and readopt such policies and
objectives on an annual basis.
(7) The board may enter into contracts with one or more persons
whom the board determines to be qualified, whereby the persons undertake
to perform the functions specified in subsection (2) to the extent provided
in the contract. Performance of functions under contract so entered into
shall be paid pursuant to rates fixed by the board subject to provisions of
appropriation acts and shall be based on specific contractual fee
arrangements. The system shall not pay or reimburse any expenses of
persons contracted with pursuant to this subsection, except that after
approval of the board, the system may pay approved investment related
expenses subject to provisions of appropriation acts. The board shall
require that a person contracted with to obtain commercial insurance
which provides for errors and omissions coverage for such person in an
amount to be specified by the board, provided that such coverage shall be
at least the greater of $500,000 or 1% of the funds entrusted to such person
up to a maximum of $10,000,000. The board shall require a person
contracted with to give a fidelity bond in a penal sum as may be fixed by
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law or, if not so fixed, as may be fixed by the board, with corporate surety
authorized to do business in this state. Such persons contracted with the
board pursuant to this subsection and any persons contracted with such
persons to perform the functions specified in subsection (2) shall be
deemed to be agents of the board and the system in the performance of
contractual obligations.
(8) (a) In the acquisition or disposition of securities, the board may
rely on the written legal opinion of a reputable bond attorney or attorneys,
the written opinion of the attorney of the investment counselor or
managers, or the written opinion of the attorney general certifying the
legality of the securities.
(b) The board shall employ or retain qualified investment counsel or
counselors or may negotiate with a trust company to assist and advise in
the judicious investment of funds as herein provided.
(9) (a) Except as provided in subsection (7) and this subsection, the
custody of money and securities of the fund shall remain in the custody of
the state treasurer, except that the board may arrange for the custody of
such money and securities as it considers advisable with one or more
member banks or trust companies of the federal reserve system or with one
or more banks in the state of Kansas, or both, to be held in safekeeping by
the banks or trust companies for the collection of the principal and interest
or other income or of the proceeds of sale. The services provided by the
banks or trust companies shall be paid pursuant to rates fixed by the board
subject to provisions of appropriation acts.
(b) The state treasurer and the board shall collect the principal and
interest or other income of investments or the proceeds of sale of securities
in the custody of the state treasurer and pay same when so collected into
the fund.
(c) The principal and interest or other income or the proceeds of sale
of securities as provided in clause (a) of this subsection (9) shall be
reported to the state treasurer and the board and credited to the fund.
(10) The board shall with the advice of the director of accounts and
reports establish the requirements and procedure for reporting any and all
activity relating to investment functions provided for in this act in order to
prepare a record monthly of the investment income and changes made
during the preceding month. The record will reflect a detailed summary of
investment, reinvestment, purchase, sale and exchange transactions and
such other information as the board may consider advisable to reflect a
true accounting of the investment activity of the fund.
(11) The board shall provide for an examination of the investment
program annually. The examination shall include an evaluation of current
investment policies and practices and of specific investments of the fund in
relation to the objective set forth in subsection (3), the standard set forth in
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subsection (4) and other criteria as may be appropriate, and
recommendations relating to the fund investment policies and practices
and to specific investments of the fund as are considered necessary or
desirable. The board shall include in its annual report to the governor as
provided in K.S.A. 74-4907, and amendments thereto, a report or a
summary thereof covering the investments of the fund.
(12) (a) Any internal assessment or examination of alternative
investments of the system performed by any person or entity employed or
retained by the board which evaluates or monitors the performance of
alternative investments shall be reported to the legislative post auditor so
that such report may be reviewed in accordance with the annual financial-
compliance audits conducted pursuant to K.S.A. 74-49,136, and
amendments thereto.
(b) The board shall prepare and submit an alternative investment
report to the joint committee on pensions, investments and benefits prior to
January 1, 2016. Such report shall include a review of alternative
investments of the system with an emphasis on the effects of changes in
law pursuant to this act and includes specific investment cost and market
value information of each individual alternative investment.
Sec. 7. 8. K.S.A. 2022 Supp. 74-4921 is hereby repealed.
Sec. 8. 9. This act shall take effect and be in force from and after its
publication in the statute book.
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