S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                  1536--A
 
                        2019-2020 Regular Sessions
 
                           I N  A S S E M B L Y
 
                             January 15, 2019
                                ___________
 
 Introduced  by  M.  of A. ORTIZ, MOSLEY, FAHY, SIMON, THIELE, GOTTFRIED,
   SEAWRIGHT, O'DONNELL,  STECK,  ENGLEBRIGHT,  CARROLL,  GLICK,  COLTON,
   BLAKE,  NIOU,  JAFFEE,  RIVERA,  DAVILA, RODRIGUEZ, ZEBROWSKI, BARRON,
   L. ROSENTHAL,  WOERNER,  GUNTHER,  DINOWITZ,  PEOPLES-STOKES,   REYES,
   EPSTEIN,   GRIFFIN,   TAYLOR,   ARROYO,   RICHARDSON,  HYNDMAN,  CRUZ,
   PHEFFER AMATO -- Multi-Sponsored by -- M. of A. COOK, DenDEKKER, RAMOS
   -- read once and referred to the Committee on  Governmental  Employees
   --  committee  discharged,  bill amended, ordered reprinted as amended
   and recommitted to said committee
 
 AN ACT to amend the retirement and social security law, in  relation  to
   limitations  on investments of public pension funds; and providing for
   the repeal of such provisions upon expiration thereof
 
   THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
 BLY, DO ENACT AS FOLLOWS:
 
   Section  1.  This  act  shall be known and may be cited as the "fossil
 fuel divestment act".
   § 2. Legislative findings. 1. a. Climate change is a real and  serious
 threat  to  the  health, welfare, and prosperity of all New Yorkers, now
 and in the future. Maintaining the status  quo  of  fossil  fuel  energy
 production will lead to catastrophic results.
   b.  The  United  Nations Intergovernmental Panel on Climate Change has
 determined that in order to keep the increase in global average  temper-
 ature  below  1.5  degrees Celsius, global greenhouse gas emissions must
 decline by 45% by 2030, and reach net zero by 2050.
   c. As such, New York State has codified into law a goal of reaching  a
 40%  economy-wide  greenhouse  gas  emissions reduction relative to 1990
 levels by 2030, and net zero emissions by 2050.
   d. The threat of climate change and the transformation of  the  global
 energy  system that will be necessary to mitigate it will have a serious
 negative impact on investors whose assets are not  aligned  with  a  1.5
 degree trajectory.

  EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                       [ ] is old law to be omitted.
              

                                                            LBD05278-05-9

 A. 1536--A                          2
 
   2. a. Continued investment in fossil fuel producers poses unacceptable
 risk to the long-term sustainability of the Common Retirement Fund.
   b.  Experts  estimate  that  demand for fossil fuels is likely to peak
 within the next decade.  In spite of this, the majority of  fossil  fuel
 producers  are  not adjusting their business models to take into account
 the changing energy market, investing billions of dollars  in  exploring
 and extracting new reserves, creating stranded asset risk and the poten-
 tial for rapid, unexpected, and significant loss of value.
   c.  Attempting  to  beat the market by holding these investments until
 the last possible moment is a high-risk strategy that  could  result  in
 the  loss  of  investment principal. In the words of the Decarbonization
 Advisory Panel for the New York State Common Retirement Fund, "being too
 early in the avoidance of the risk of permanent loss is much less  of  a
 danger than being too late."
   3.  a. The Legislature is bound by a fiduciary responsibility over the
 pension fund.
   b. This responsibility includes a duty to future as  well  as  current
 beneficiaries. It is therefore incumbent upon the Legislature as fiduci-
 ary  to  concern  itself with how the Fund rebalances its investments to
 meet its financial performance targets, favoring the long-term sustaina-
 bility of the Fund over seeking short-term gains. Fossil fuel  producers
 are  currently  underperforming compared to the broader market. However,
 even if they were to produce acceptable returns in the near  term,  they
 present  undue  long-term  risk that compels trustee action on behalf of
 future beneficiaries.
   c. Duties to future beneficiaries may reasonably include consideration
 of their human interests, quality of life, and public safety and securi-
 ty, and therefore may mandate that trustees try to accelerate the  shift
 away  from  fossil  fuels to help mitigate the future adverse effects of
 climate change.
   d. Given the systemic threat of climate change to  the  economy  as  a
 whole,  and  therefore  to  the  value  of  the Fund's entire portfolio,
 consideration of the climate impact of certain investments  is  entirely
 appropriate.  According  to  the  US  Department of Labor's interpretive
 bulletin 2015-1, environmental issues "may have a direct relationship to
 the economic value of the plan's investment. In  these  instances,  such
 issues  are  not  merely  collateral considerations or tie-breakers, but
 rather are proper components of the fiduciary's primary analysis of  the
 economic merits of competing investment choices."
   e.  The  Common  Retirement  Fund  has  set a precedent by choosing to
 divest from certain industries in the past due to the moral implications
 of their business models, including private prisons,  firearms  manufac-
 turers,  and  companies  doing  business with Sudan, all while complying
 with the Comptroller's fiduciary obligations.
   f. Over 1,100 institutional investors representing more than $11 tril-
 lion in holdings have chosen to pursue full or partial  divestment  from
 fossil  fuel  producers, including the Teachers Retirement System of the
 City of New York, the New York City  Employees  Retirement  System,  the
 endowment  and pension funds of the University of California system, and
 the sovereign wealth funds of Norway and Ireland. This bill  adopts  the
 prevailing  approaches  of  these  similarly  situated  fiduciaries with
 regard to fossil  fuel  divestment,  and  therefore  complies  with  the
 prudent  investor  standard  defined  by  section 11-2.3 of the estates,
 powers and trusts law.

 A. 1536--A                          3
 
   4. a. The  Legislature  is  within  its  constitutional  authority  to
 instruct  the Comptroller to divest from fossil fuel producers along the
 lines outlined in this bill.
   b.  The  Court  of Appeals ruled in SCAGLIONE V. LEVITT that the Comp-
 troller's freedom to invest is "limited by the continuing power  of  the
 Legislature  to  expand or restrict the classes and kinds of investments
 in which he may place the funds in his care," provided that his  or  her
 discretion  is  not impaired. The Comptroller's discretion is maintained
 in this bill through the mechanism of the Determination of Prudence.
   c. The Court of Appeals further ruled in MCDERMOTT V. REGAN and GUZDEK
 V. MCCALL that a proposed change to the  management  of  the  Retirement
 System  would  be  deemed "radical" and would compel "close examination"
 if, in addition to interfering with  the  Comptroller's  discretion,  it
 destabilized the system or created an inappropriate level of risk in the
 management  of  the  Fund. The Legislature finds that there is extensive
 evidence that this bill, if enacted, would not meet any of these thresh-
 olds.
   d. Existing state law, in effect for decades, provides an example of a
 limitation on the Comptroller's freedom to invest, placing  requirements
 on  the  Comptroller  to  consider  certain social and political factors
 before investing in companies doing business in Northern Ireland.
   5. a. Given the severely adverse impact that climate change will  have
 on  the lives of all New Yorkers and all people on the planet, the State
 has a responsibility to take all available steps to avert  and  mitigate
 it.
   b.  Attempting  to profit from investments in companies whose business
 models, public relations campaigns, and lobbying efforts not  only  fail
 to comply with New York's statutory climate goals, but put the stability
 of our society and the safety of our citizens at risk, is neither moral-
 ly acceptable nor in compliance with the Legislature's fiduciary respon-
 sibility to current and future pension beneficiaries.
   § 3. The retirement and social security law is amended by adding a new
 section 423-d to read as follows:
   §  423-D.  FOSSIL  FUEL  DIVESTMENT.  1.  DEFINITIONS. AS USED IN THIS
 SECTION:
   A. "COAL PRODUCER" MEANS ANY CORPORATION OR COMPANY, OR ANY SUBSIDIARY
 OR PARENT OF ANY CORPORATION OR COMPANY, THAT DERIVES  AT  LEAST  TWENTY
 PERCENT  OF ANNUAL REVENUE FROM THERMAL COAL PRODUCTION, OR ACCOUNTS FOR
 MORE THAN ONE PERCENT OF GLOBAL PRODUCTION OF  THERMAL  COAL,  OR  WHOSE
 REPORTED  COAL  RESERVES  CONTAIN  MORE  THAN  0.3 GIGATONS OF POTENTIAL
 CARBON DIOXIDE EMISSIONS;
   B. "DIRECT INVESTMENT" MEANS OWNERSHIP OF AN INDIVIDUAL STOCK, SECURI-
 TY, EQUITY, ASSET, OR OTHER OBLIGATION OF A CORPORATION OR COMPANY;
   C. "EXCLUSION LIST" MEANS THE LIST CREATED PURSUANT TO PARAGRAPH A  OF
 SUBDIVISION TWO OF THIS SECTION;
   D. "INDIRECT INVESTMENT" MEANS A HOLDING IN AN INVESTMENT VEHICLE THAT
 DIRECTLY  OR  INDIRECTLY  OWNS  AN  INDIVIDUAL  STOCK, SECURITY, EQUITY,
 ASSET, OR OTHER OBLIGATION OF A CORPORATION OR COMPANY;
   E. "OIL AND GAS PRODUCER" MEANS ANY CORPORATION  OR  COMPANY,  OR  ANY
 SUBSIDIARY  OR  PARENT  OF  ANY  CORPORATION OR COMPANY, THAT DERIVES AT
 LEAST TWENTY PERCENT OF ANNUAL REVENUE FROM OIL OR  GAS  PRODUCTION,  OR
 ACCOUNTS  FOR  MORE THAN ONE PERCENT OF GLOBAL OIL OR GAS PRODUCTION, OR
 WHOSE REPORTED COMBINED OIL AND GAS RESERVES CONTAIN MORE THAN 0.1 GIGA-
 TONS OF POTENTIAL CARBON DIOXIDE EMISSIONS;

 A. 1536--A                          4
 
   F. "OIL OR GAS PRODUCTION" MEANS  EXPLORATION,  EXTRACTION,  DRILLING,
 PRODUCTION,  REFINING, PROCESSING, OR DISTRIBUTION ACTIVITIES RELATED TO
 OIL OR GAS; AND
   G.  "THERMAL  COAL PRODUCTION" MEANS MINING, TRANSPORT, PROCESSING, OR
 EXPLORATION ACTIVITIES RELATED TO THERMAL COAL.
   2. FOSSIL FUEL PRODUCER EXCLUSION LIST. A. WITHIN SIX  MONTHS  OF  THE
 EFFECTIVE  DATE  OF THIS SECTION, THE COMPTROLLER SHALL CREATE AN EXCLU-
 SION LIST OF ALL COAL PRODUCERS AND  OIL  AND  GAS  PRODUCERS  IN  WHOSE
 STOCKS,  SECURITIES,  EQUITIES,  ASSETS, OR OTHER OBLIGATIONS THE COMMON
 RETIREMENT FUND HAS ANY MONEYS OR ASSETS DIRECTLY INVESTED.
   B. UPON COMPLETION OF THE EXCLUSION LIST, IT SHALL  BE  MADE  PUBLICLY
 AVAILABLE,  AND  A  COPY SHALL BE SENT TO THE TEMPORARY PRESIDENT OF THE
 SENATE AND THE SPEAKER OF THE ASSEMBLY.
   C. THE COMPTROLLER SHALL SUBMIT NOTIFICATION  TO  ANY  CORPORATION  OR
 COMPANY  THAT  HAS BEEN INCLUDED IN THE EXCLUSION LIST INFORMING THEM OF
 THEIR INCLUSION, AS WELL AS THE REQUIREMENTS OF SUBDIVISIONS  THREE  AND
 FIVE OF THIS SECTION.
   D.  AT THE COMPTROLLER'S DISCRETION, BUT NO LATER THAN TWO YEARS AFTER
 THE COMPLETION OF THE EXCLUSION LIST, AND NO LESS FREQUENTLY THAN  BIEN-
 NIALLY  THEREAFTER,  THE  COMPTROLLER SHALL UPDATE THE EXCLUSION LIST TO
 REMOVE ANY CORPORATION OR COMPANY THAT IS NO LONGER A COAL  PRODUCER  OR
 AN OIL AND GAS PRODUCER, AND ADD ANY CORPORATION OR COMPANY NECESSARY TO
 COMPLY  WITH PARAGRAPH A OF THIS SUBDIVISION, WITH THE EXCEPTION OF SUCH
 COMPANIES REMOVED FROM THE EXCLUSION LIST PURSUANT  TO  PARAGRAPH  B  OF
 SUBDIVISION FOUR OF THIS SECTION.
   3.  REMOVAL  FROM  THE  EXCLUSION  LIST.  A. AT ANY TIME FOLLOWING THE
 PUBLICATION OF THE EXCLUSION LIST, ANY CORPORATION OR  COMPANY  INCLUDED
 IN  THE  LIST MAY SUBMIT TO THE COMPTROLLER A REQUEST FOR REMOVAL ON THE
 BASIS OF CLEAR AND CONVINCING EVIDENCE THAT THEY  ARE  NOT  CURRENTLY  A
 COAL  PRODUCER  OR AN OIL AND GAS PRODUCER AS DEFINED IN SUBDIVISION ONE
 OF THIS SECTION OR THAT THEY WILL NO  LONGER  MEET  SUCH  DEFINITION  BY
 JANUARY FIRST, TWO THOUSAND THIRTY.
   B.  UPON  SATISFACTION  THAT  A  CORPORATION  OR  COMPANY  HAS MET THE
 REQUIREMENTS OF PARAGRAPH A OF THIS SUBDIVISION, THE  COMPTROLLER  SHALL
 REMOVE  THAT CORPORATION OR COMPANY FROM THE EXCLUSION LIST, AND PROVIDE
 A WRITTEN EXPLANATION FOR SUCH REMOVAL TO THE TEMPORARY PRESIDENT OF THE
 SENATE AND THE SPEAKER OF THE ASSEMBLY.
   4. DETERMINATION OF PRUDENCE. A. WITHIN SIX MONTHS FROM THE COMPLETION
 OF THE EXCLUSION LIST THE COMPTROLLER SHALL ISSUE A DETERMINATION AS  TO
 WHETHER  DIVESTMENT  FROM  ANY  OR  ALL CORPORATIONS OR COMPANIES ON THE
 EXCLUSION LIST, IN WHOLE OR IN PART, PURSUANT  TO  SUBDIVISION  FIVE  OF
 THIS  SECTION  COMPLIES  WITH  HIS  OR HER FIDUCIARY OBLIGATIONS AND THE
 PRUDENT INVESTOR RULE AS DEFINED  BY  SECTION  11-2.3  OF  THE  ESTATES,
 POWERS  AND  TRUSTS  LAW.  THE COMPTROLLER SHALL MAKE SUCH DETERMINATION
 PUBLICLY AVAILABLE AND A COPY SHALL BE SENT TO THE  TEMPORARY  PRESIDENT
 OF THE SENATE AND THE SPEAKER OF THE ASSEMBLY.
   B.  IF THE COMPTROLLER DETERMINES THAT DIVESTMENT FROM ANY CORPORATION
 OR COMPANY ON THE EXCLUSION LIST DOES NOT COMPLY WITH HIS OR HER FIDUCI-
 ARY OBLIGATIONS AND THE PRUDENT INVESTOR  RULE  AS  DEFINED  BY  SECTION
 11-2.3 OF THE ESTATES, POWERS AND TRUSTS LAW, THAT CORPORATION OR COMPA-
 NY SHALL BE REMOVED FROM THE EXCLUSION LIST.
   C.  AT ANY TIME, SUBJECT TO THE COMPTROLLER'S DISCRETION, BUT NO LATER
 THAN FIVE YEARS AND SIX MONTHS FROM THE EFFECTIVE DATE OF THIS  SECTION,
 AND  EVERY  FIVE YEARS THEREAFTER, ANY CORPORATIONS OR COMPANIES REMOVED
 FROM THE EXCLUSION LIST PURSUANT TO  PARAGRAPH  B  OF  THIS  SUBDIVISION
 SHALL  BE RETURNED TO THE EXCLUSION LIST, SUBJECT TO A NEW DETERMINATION

 A. 1536--A                          5
 
 OF PRUDENCE ISSUED AT THAT TIME PURSUANT TO PARAGRAPH A OF THIS SUBDIVI-
 SION.
   5. DIVESTMENT. A. COMMENCING ONE YEAR AFTER THE EFFECTIVE DATE OF THIS
 SECTION, SUBJECT TO AN AFFIRMATIVE DETERMINATION OF PRUDENCE PURSUANT TO
 SUBDIVISION  FOUR  OF THIS SECTION, AND IN ACCORDANCE WITH SOUND INVEST-
 MENT CRITERIA AND CONSISTENT WITH HIS OR HER FIDUCIARY OBLIGATIONS,  THE
 COMPTROLLER  SHALL: (I) DIVEST THE COMMON RETIREMENT FUND OF ANY STOCKS,
 SECURITIES, EQUITIES, ASSETS, OR OTHER OBLIGATIONS  OF  CORPORATIONS  OR
 COMPANIES  ON  THE  EXCLUSION  LIST IN WHICH ANY MONEYS OR ASSETS OF THE
 COMMON RETIREMENT FUND ARE DIRECTLY INVESTED; AND (II) CEASE NEW  DIRECT
 INVESTMENTS OF ANY MONEYS OR ASSETS OF THE COMMON RETIREMENT FUND IN ANY
 STOCKS,  SECURITIES,  OR OTHER OBLIGATIONS OF ANY CORPORATION OR COMPANY
 THAT IS A COAL PRODUCER OR OIL AND GAS PRODUCER.
   B. DIVESTMENT FROM OIL AND GAS PRODUCERS PURSUANT TO THIS  SUBDIVISION
 SHALL  BE  COMPLETED NO LATER THAN FIVE YEARS FROM THE EFFECTIVE DATE OF
 THIS SECTION. DIVESTMENT FROM OIL AND  GAS  PRODUCERS  RETURNED  TO  THE
 EXCLUSION  LIST  PURSUANT  TO  PARAGRAPH  C  OF SUBDIVISION FOUR OF THIS
 SECTION SHALL BE COMPLETED NO LATER THAN FIVE YEARS  FROM  THE  DATE  OF
 RETURN TO THE EXCLUSION LIST.
   C.  DIVESTMENT  FROM COAL PRODUCERS PURSUANT TO THIS SUBDIVISION SHALL
 BE COMPLETED NO LATER THAN TWO YEARS FROM THE  EFFECTIVE  DATE  OF  THIS
 SECTION.   DIVESTMENT FROM COAL PRODUCERS RETURNED TO THE EXCLUSION LIST
 PURSUANT TO PARAGRAPH C OF SUBDIVISION FOUR OF  THIS  SECTION  SHALL  BE
 COMPLETED  NO LATER THAN TWO YEARS FROM THE DATE OF RETURN TO THE EXCLU-
 SION LIST.
   6. LIMITATIONS ON INDIRECT INVESTMENT. COMMENCING ONE YEAR  AFTER  THE
 EFFECTIVE  DATE  OF  THIS SECTION, AND NO LATER THAN FIVE YEARS FROM THE
 EFFECTIVE DATE OF THIS SECTION, SUBJECT TO AN AFFIRMATIVE  DETERMINATION
 OF PRUDENCE PURSUANT TO SUBDIVISION FOUR OF THIS SECTION, AND IN ACCORD-
 ANCE WITH SOUND INVESTMENT CRITERIA AND CONSISTENT WITH HIS OR HER FIDU-
 CIARY  OBLIGATIONS,  THE  COMPTROLLER  SHALL  ENDEAVOR TO ENSURE THAT NO
 MONEYS OR ASSETS OF THE COMMON RETIREMENT FUND ARE INVESTED IN AN  INDI-
 RECT  INVESTMENT  VEHICLE  UNLESS  HE  OR SHE IS SATISFIED ON REASONABLE
 GROUNDS THAT SUCH INDIRECT INVESTMENT VEHICLE IS  UNLIKELY  TO  HAVE  IN
 EXCESS  OF  TWO  PERCENT  OF  ITS ASSETS, AVERAGED ANNUALLY, DIRECTLY OR
 INDIRECTLY INVESTED IN COAL PRODUCERS AND OIL AND GAS PRODUCERS.
   7. REPORTING. COMMENCING TWO YEARS AFTER THE EFFECTIVE  DATE  OF  THIS
 SECTION  AND ANNUALLY THEREAFTER THE COMPTROLLER SHALL ISSUE A REPORT TO
 THE TEMPORARY PRESIDENT OF THE SENATE AND THE SPEAKER OF  THE  ASSEMBLY,
 AND  SHALL  MAKE  SUCH  REPORT PUBLICLY AVAILABLE, OUTLINING ALL ACTIONS
 TAKEN TO COMPLY WITH THIS SECTION.
   § 4. This act shall take effect immediately and shall  expire  and  be
 deemed repealed January 1, 2050.