Amendment ID: S2545-25-R1

Redraft Amendment 25

Coal Only Divestment

Messrs. Feeney and Pacheco move that the proposed new draft be amended by inserting after section 28 the following sections:-

“SECTION 28A. (a) As used in this section, the following words shall have the following meanings unless the context clearly requires otherwise:

“Board”, the pension reserves investment management board established in section 23 of chapter 32 of the General Laws.

“Company”, a sole proprietorship, organization, association, corporation, partnership, joint venture, limited partnership, limited liability partnership, limited liability company or other entity or business association, including all wholly-owned subsidiaries, majority-owned subsidiaries, parent companies or affiliates of such entities or business associations that exist for profit-making purposes.

“Direct holdings”, all securities of a company held directly by the public fund or in an account or fund in which the public fund owns all shares or interests.

“Fossil fuel company”, a company identified by a Global Industry Classification System code in 1 of the following sectors: (i) coal and consumable fuels; (ii) integrated oil and gas; or (iii) oil and gas exploration and production.

“Indirect holdings”, all securities of a company held in an account or fund, including a mutual fund, managed by at least 1 person not employed by the public fund and in which the public fund owns shares or interests together with other investors not subject to this section.

“Public fund”, the Pension Reserves Investment Trust Fund established in subdivision (8) of section 22 of chapter 32 of the General Laws or the pension reserves investment management board charged with managing the pooled investment fund consisting of the assets of the State Employees’ and Teachers’ Retirement Systems and the assets of local retirement systems under the control of the board.

"Thermal coal", coal used to generate electricity, including coal which is burned to create steam to run turbines; provided, however, “thermal coal” shall not include metallurgical coal or coking coal used to produce steel.

"Thermal coal company", a publicly-traded company that generates at least 50 per cent of its revenue from the mining of thermal coal as determined by the board.

(b) Notwithstanding any general or special law to the contrary, within 30 days after the effective date of this act, the public fund shall facilitate the identification of all thermal coal and fossil fuel companies in which the fund owns direct or indirect holdings.

(c) Notwithstanding any general or special law to the contrary, the public fund shall take the following actions in relation to thermal coal companies in which the fund owns direct or indirect holdings:

(i) sell, redeem, divest or withdraw all publicly-traded securities of each thermal coal company identified pursuant to subsection (b) before December 31, 2020;

(ii) if recommended by the commission established in subsection (d), sell, redeem, divest or withdraw all publicly-traded securities of each fossil fuel company identified pursuant to subsection (b) according to the following schedule: (i) at least 33 per cent of such assets shall be removed from the public fund’s assets under management before December 31, 2022; (ii) 67 per cent of such assets shall be removed from the public fund’s assets under management before December 31, 2024; and (iii) 100 per cent of such assets shall be removed from the public fund’s assets under management before December 31, 2025.

The public fund shall not acquire new assets or securities of thermal coal companies or, if so recommended by the commission established in subsection (d), fossil fuel companies.

(d) There shall be a special commission to investigate and study divestment of the public fund from fossil fuel companies, but not including thermal coal companies, as proposed by the schedule in subsection (c). The commission shall evaluate the benefits of divestment from fossil fuels, not including thermal coal, compared to any potential increased risk that divestment may pose to the commonwealth’s pension funds and retirees.

The commission shall consist of: the state treasurer or a designee who shall serve as chair; the executive director of the public employee retirement administration commission or a designee; a member of the Retired State, County and Municipal Employees Association of Massachusetts; an active member of the Service Employees International Union who shall be designated by the state council; and 3 private citizens to be appointed by the governor who shall have expertise and current employment in environment, social and governance-related finance, institutional divestment or climate science.

The commission shall consult with experts in the relevant fields of economics, wealth management, fiduciary law and environmental sciences. The report shall include, but not be limited to: (i) recommendations on defining fossil fuel companies; (ii) a sensitivity analysis of the potential impact of divestment on the fund’s return on investment, including an analysis of the potential impact that divestment from fossil fuel companies may have on the amortization schedules for the commonwealth’s pension funds; (iii) an analysis and recommendations as to how to best incorporate assessment of carbon risk into the investment policy statement; (iv) an analysis of the potential environmental and policy benefits derived from divestment from fossil fuel companies; (v) recommendations on divestment of indirect holdings, particularly regarding potential exceptions for mutual funds and index funds that may invest in fossil fuel companies; (vi) analysis of the potential impact that divestment may pose to companies and employees based in the commonwealth; and (vii) recommendations on effective administration and oversight of fossil fuel divestment.

The commission shall file its report and its recommendations, together with an actuarial analysis, if any, with the clerks of the senate and house of representatives, the chairs of the senate and house committees on ways and means and the chairs of the joint committee on public service not later than April 1, 2019.

(e) Notwithstanding this section, any requirement to divest the public fund from thermal coal or other fossil fuel companies shall not apply to indirect holdings in actively-managed investment funds; provided, however, that the public fund shall submit letters to the managers of the investment funds containing thermal coal or other fossil fuel companies requesting that they consider removing remove such companies from the investment fund or create a similar actively-managed fund with indirect holdings devoid of such companies. If the manager creates a similar fund, the public fund shall replace all applicable investments with investments in the similar fund in an expedited timeframe consistent with prudent investing standards.  For the purposes of this section, private equity funds shall be deemed to be actively-managed investment funds.

(f) Notwithstanding any general or special law to the contrary, the public fund may cease divesting from companies under subsection (c), reinvest in companies from which it divested under said subsection (c) or continue to invest in companies from which it has not yet divested upon clear and convincing evidence showing that the total and aggregate value of all assets under management by or on behalf of the public fund becomes: (i) equal to or less than 99.5 per cent; or (ii) 100 per cent less 50 basis points of the net value of all assets under management by or on behalf of the public fund in the previous year as a direct result of divestment. Cessation of divestment, reinvestment or any subsequent ongoing investment authorized by this section shall be strictly limited to the minimum steps necessary to avoid the contingency set forth in the preceding sentence. For any cessation of divestment and in advance of any cessation authorized by this subsection, the public fund shall provide a written report to the attorney general, the senate and house committees on ways and means and the joint committee on public service, updated semi-annually thereafter as applicable, setting forth the reasons and justification, supported by clear and convincing evidence, for its decisions to cease divestment, to reinvest or to remain invested in thermal coal.

This subsection shall also apply to any divestment of the public fund from fossil fuel companies.

(g) Present, future and former board members of the public fund, jointly and individually, state officers and employees and investment managers under contract with the public fund shall be indemnified from the General Fund and held harmless by the commonwealth from all claims, demands, suits, actions, damages, judgments, costs, charges and expenses, including court costs and attorneys’ fees, and against all liability, losses and damages of any nature whatsoever that such present, future or former board members, state officers and employees and investment managers shall or may at any time sustain by reason of any decision to restrict, reduce or eliminate investments in fossil fuel companies.

(h) The public fund shall file a copy of the lists of thermal coal in which the fund owns direct or indirect interests with the clerks of the senate and the house of representatives and the attorney general within 30 days after of the effective date of this act. Annually thereafter, the public fund shall file a report with the clerks of the senate and the house of representatives and the attorney general which shall includes: (i) all investments sold, redeemed, divested or withdrawn in compliance with subsection (c); and (ii) all prohibited investments from which the public fund has not yet divested under said subsection (c). This subsection shall also apply to any divestment of the public fund from fossil fuel companies.