House Amendment 1
H 3690 - Session 125 (2023-2024)
ESG

The Committee on Labor, Commerce and Industry proposes the following amendment (LC-3690.SA0001H):

Amend the bill, as and if amended, SECTION 2, by striking Section 9-16-10(10) and inserting:

(10) "Pecuniary factor" means a factor that a prudent person in a like capacity would reasonably believe has a material effect or impact on the financial risk or return on an investment, including factors material to assessing an investment manager's operational capability, based on an appropriate investment horizon consistent with a retirement system's investment objectives and funding policy. The term excludes "nonpecuniary factors" which is any factor or consideration that is collateral to or not reasonably likely to effect or impact the financial risk and return of the investment and include, but are not limited to, the promotion, furtherance, or achievement of environmental, social, or political goals, objectives, or outcomes.

Amend the bill further, SECTION 3, by striking Section 9-16-30(G)(1), (2), and (3) and inserting:

(1) The commission shall cast shareholder proxy votes that are in keeping with its fiduciary duties that are consistent with the best interest of the trust fund, based on pecuniary factors, and most likely to maximize shareholder value over an appropriate investment horizon consistent with a retirement systems investment objectives and funding policy. Any commission engagement with a company regarding the exercise of shareholder proxy votes or the proposal of a proxy question must be based solely on pecuniary factors and for the sole purpose of maximizing shareholder value, except that the commission may engage with a company to express opposition to the proposal of or the merits of a proxy question that does not have a pecuniary impact.

(2) To the extent that it is economically practicable, the commission must retain the authority to exercise shareholder proxy rights for shares that are owned directly or indirectly on behalf of a system. The commission may retain a proxy firm or advisory service to assist the commission in exercising shareholder proxy rights, but only if the proxy advisor has a practice of and commits in writing to follow proxy guidelines that are consistent with the requirements of item (1).

(3) The commission only may allocate capital to a public equity investment strategy if the manager of the investment strategy has a practice of and commits in writing to meet the requirements of item (1) and Section 9-16-50(A)(5), unless it is not economically practicable for the commission to do so, or it is necessary for the commission to avoid the concentration of assets with any one or more investment managers. For any public equity investment strategy for which the manager does not have a practice of and does not commit in writing to meet the requirements of item (1), the commission must include a summary of the terms, fees, and performance of the investment in the commission's annual investment report and publish the summary in a conspicuous location on the commission's website.

Amend the bill further, SECTION 4, by striking Section 9-16-50(A)(5) and inserting:

(5) may consider benefits created by an investment in addition to investment return only if the commission determines that the investment providing these collateral benefits would be prudent even without the collateral benefits only shall consider pecuniary factors in making an investment decision or when allocating capital to an investment strategy.

Amend the bill further, SECTION 4, by striking Section 9-16-50(B) and inserting:

(B) The commission shall adopt a statement of investment objectives and policies for the retirement system. The statement must include the desired rate of return on assets overall, the desired rates of return and acceptable levels of risk for each asset class, asset-allocation goals, guidelines for the delegation of authority, an explicit statement that all investment decisions must be based only on the consideration of pecuniary factors, and information on the types of reports to be used to evaluate investment performance. At least annually, the commission shall review the statement and change or reaffirm it. The relevant portion of this statement may constitute parts of the annual investment plan required pursuant to Section 9-16-330.

Amend the bill further, SECTION 6, by striking Section 9-16-330(B)(2) and inserting:

(2) Any final authority delegated to the chief investment officer pursuant to this subsection must be exercised subject to the oversight of the chief executive officer. The closing documentation of an investment made pursuant to this delegation must include the chief executive officer's certification that the investment conforms to the amount and the extent of the delegation. The closing documentation of any investment also must include the chief executive officer's certification that the decision to make the investment is based on pecuniary factors and is not being made to promote, further, or achieve any nonpecuniary goal, objective, or outcome. Any authority exercised pursuant to this section must be exercised in a manner consistent with the limitations imposed by this section and investments may not be divided into smaller amounts in order to avoid these limitations. The commission must be notified of an investment made pursuant to any delegated authority within three business days of the investment's closing and the investment must be reviewed with the commission at its next regularly scheduled meeting. The commission may amend, suspend, or revoke the delegation of the final authority to invest at any time and may place stricter limits on any delegated authority than those provided in this subsection.