Iowa-2023-HSB180-Introduced

S.F. _____ H.F. _____ Section 1. Section 12.8, subsection 1, Code 2023, is amended 1 to read as follows: 2 1. The treasurer of state shall invest or deposit, subject 3 to chapters 12F , 12H , and 12J , and 12K and as provided by law, 4 any of the public funds not currently needed for operating 5 expenses and shall do so upon receipt of monthly notice from 6 the director of the department of administrative services of 7 the amount not so needed. In the event of loss on redemption 8 or sale of securities invested as prescribed by law, and if 9 the transaction is reported to the executive council, neither 10 the treasurer nor director of the department of administrative 11 services is personally liable but the loss shall be charged 12 against the funds which would have received the profits or 13 interest of the investment and there is appropriated from the 14 funds the amount so required. 15 Sec. 2. NEW SECTION . 12K.1 Legislative findings and intent. 16 The general assembly is deeply concerned over the increased 17 prevalence of investing based on social and environmental 18 factors, known as environmental, social, and governance 19 investing, rather than pecuniary factors. Therefore, the 20 general assembly intends to ensure that state funds and funds 21 administered by the state, including public employee retirement 22 funds, are protected from political influence detrimental to 23 the financial health of the state and its citizens and promote 24 the general assembly’s goal of protecting free enterprise. 25 Sec. 3. NEW SECTION . 12K.2 Definitions. 26 As used in this chapter, unless the context otherwise 27 requires: 28 1. “Boycott of certain companies” means, except as otherwise 29 provided in chapters 12F, 12H, and 12J or without a reasonable 30 business purpose, refusal to invest in a company, termination 31 of business activities with a company, or another action that 32 is intended to penalize, inflict economic harm on, or limit 33 commercial relations with a company because the company does 34 any of the following: 35 -1- LSB 1571XL (6) 90 ec/rn 1/ 10

S.F. _____ H.F. _____ a. Engages in, or does business with a company that engages 1 in, the exploration, production, utilization, transportation, 2 or sale of fossil fuel-based energy, timber, mining, or 3 production agriculture. 4 b. Engages in, or does business with a company that engages 5 in, the manufacturing, distribution, sale, import, export, or 6 lawful use of firearms, firearm parts, firearm accessories, or 7 ammunition. 8 2. “Company” means any business or business entity, bank, 9 national banking association, nonbank financial institution, 10 financial services company, investment company, bank and trust 11 company, trust company, savings and loan association, building 12 and loan association, mutual savings bank, credit union, or 13 savings bank, including a wholly owned subsidiary, majority- 14 owned subsidiary, parent company, or affiliate of such business 15 or business entity, that exists for the purpose of making a 16 profit. 17 3. “Nonpecuniary social investment” means, except as 18 otherwise provided in this chapter and chapters 12F, 12H, 19 and 12J, investment or commitment of public funds to further 20 environmental, social, governance, political, or ideological 21 interests and for the purpose of obtaining an effect other than 22 a maximized return to the public fund without a reasonable 23 business purpose. 24 4. “Public entity” means the state, political subdivisions 25 of the state, public school corporations, and all public 26 officers, boards, commissions, departments, agencies, and 27 authorities empowered by law to enter into public contracts for 28 the expenditure of public funds, including the state board of 29 regents and institutions under the control of the state board 30 of regents. “Public entity” includes a public fund. 31 5. “Public fund” means the treasurer of state, the state 32 board of regents, the public safety peace officers’ retirement 33 system created in chapter 97A, the Iowa public employees’ 34 retirement system created in chapter 97B, the statewide fire 35 -2- LSB 1571XL (6) 90 ec/rn 2/ 10

S.F. _____ H.F. _____ and police retirement system created in chapter 411, or the 1 judicial retirement system created in chapter 602. 2 6. “Reasonable business purpose” means includes any purpose 3 directly related to any of the following: 4 a. Promoting the financial success or stability of a 5 company. 6 b. Mitigating risk to a company. 7 c. Complying with legal or regulatory requirements. 8 d. Limiting liability of a company. 9 7. “Scrutinized company” means any company that engages in 10 nonpecuniary social investment on behalf of a public entity or 11 a boycott of certain companies on behalf of a public entity. 12 8. “Scrutinized company list” means the list of scrutinized 13 companies prepared, maintained, and published by a public fund 14 pursuant to section 12K.3. 15 Sec. 4. NEW SECTION . 12K.3 Identification of scrutinized 16 companies —— notice. 17 1. a. By March 1, 2024, a public fund shall make its best 18 efforts to identify or have identified any scrutinized company 19 that the public fund has entered into a contract with to 20 provide investment or management of securities services for the 21 public fund. The public fund shall create and make available 22 to the public a scrutinized company list for that public fund. 23 The public fund shall review on an annual basis and update, if 24 necessary, the scrutinized company list. 25 b. In making its best efforts to identify or have identified 26 a scrutinized company, the public fund shall consider and may 27 rely upon any of the following information: 28 (1) A company’s certification that it is not engaged 29 in nonpecuniary social investment or a boycott of certain 30 companies. 31 (2) Publicly available information made by the company, 32 including information that may be provided by nonprofit 33 organizations, research firms, and international organizations, 34 or publicly available statements by a member of a company’s 35 -3- LSB 1571XL (6) 90 ec/rn 3/ 10

S.F. _____ H.F. _____ governing body, an executive director of a company, or any 1 other officer or employee of the company with the authority to 2 issue policy statements on behalf of the company. 3 (3) Information published by the state or federal 4 government. 5 c. The Iowa public employees’ retirement system, acting 6 on behalf of the system and other public funds subject to 7 this section, may develop and issue a request for proposals 8 for third-party services to complete the identification of 9 any scrutinized company and the compilation of a scrutinized 10 company list. The Iowa public employees’ retirement system 11 shall consult with all other public funds on the development of 12 the request for proposals. However, selection of a successful 13 proposal and the final scope of services to be provided shall 14 be determined only by those public funds that have agreed to 15 utilize the third-party services. If more than one public fund 16 decides to utilize the third-party services, the participating 17 public funds shall equally share the costs of such services. 18 2. a. For each company on the scrutinized company list, the 19 public fund shall send or have sent a written notice informing 20 the company of its status as a scrutinized company and that 21 it may become subject to contract termination with the public 22 fund. 23 b. If, following notice as provided by this section, a 24 company ceases activity that designates it as a scrutinized 25 company and submits a written statement to the public fund that 26 it has ceased engaging in nonpecuniary social investment or a 27 boycott of certain companies, the company shall be removed from 28 the scrutinized company list. 29 Sec. 5. NEW SECTION . 12K.4 Public funds —— contract and 30 investment requirements. 31 1. A public fund shall not enter into a contract with a 32 company to provide investment or management of securities 33 services to the public fund so long as such company remains on 34 the public fund’s scrutinized company list as provided in this 35 -4- LSB 1571XL (6) 90 ec/rn 4/ 10

S.F. _____ H.F. _____ chapter or if the company would engage in nonpecuniary social 1 investment or a boycott of certain companies on behalf of the 2 public fund. 3 2. a. In accordance with sound investment criteria and 4 consistent with fiduciary obligations, a public fund shall 5 terminate a contract to provide investment or management 6 of securities services with a company on the public fund’s 7 scrutinized company list, so long as the company remains on 8 that list, within eighteen months following the first written 9 notice sent to the scrutinized company as required by section 10 12K.3. 11 b. This subsection shall not be construed to require the 12 premature or otherwise imprudent termination of a contract, but 13 any termination of a contract shall be completed as provided 14 by this subsection. 15 Sec. 6. NEW SECTION . 12K.5 Reports. 16 1. Scrutinized companies list. Each public fund shall, 17 within thirty days after the scrutinized company list is 18 created or updated as required by section 12K.3, make the list 19 available to the public. 20 2. Annual report. On October 1, 2024, and each October 21 1 thereafter, each public fund shall make available to the 22 public, and file with the general assembly, an annual report 23 covering the prior fiscal year that includes the following: 24 a. The scrutinized company list as of the end of the fiscal 25 year. 26 b. A summary of all written notices sent as required by 27 section 12K.3 during the fiscal year. 28 c. All contracts terminated as provided in section 12K.4 29 during the fiscal year. 30 Sec. 7. NEW SECTION . 12K.6 Public entities —— contract 31 requirements. 32 A public entity shall not enter into a contract of one 33 thousand dollars or more with a scrutinized company included on 34 a scrutinized company list created by a public fund pursuant 35 -5- LSB 1571XL (6) 90 ec/rn 5/ 10

S.F. _____ H.F. _____ to section 12K.3 for services including but not limited to the 1 investment or management of securities in which any public 2 funds are invested. 3 Sec. 8. NEW SECTION . 12K.7 Public funds —— legal 4 obligations. 5 1. With respect to actions taken in compliance with this 6 chapter, including all good-faith determinations regarding 7 companies as required by this chapter, the public fund shall 8 be immune from any liability and exempt from any conflicting 9 statutory or common law obligations, including any such 10 obligations in respect to choice of asset managers, investment 11 funds, or investments for the public fund’s securities 12 portfolios. 13 2. This chapter shall not limit the ability of a public fund 14 to terminate the contract of an investment manager or other 15 vendor at any time and for any reason in the exercise of the 16 public fund’s fiduciary duties. 17 Sec. 9. Section 35A.13, subsection 4, paragraph a, Code 18 2023, is amended to read as follows: 19 a. Notwithstanding subsection 5 , moneys in the fund, except 20 so much of the fund as may be necessary to be kept on hand 21 for the making of disbursements under this section , shall 22 be invested by the treasurer of state, in consultation with 23 the commission and the public retirement systems committee 24 established by section 97D.4 , in any investments authorized for 25 the Iowa public employees’ retirement system in section 97B.7A , 26 including common stock, and subject to the requirements of 27 chapters 12F , 12H , and 12J , and 12K, and the earnings therefrom 28 shall be credited to the fund. The treasurer of state may 29 execute contracts and agreements with investment advisors, 30 consultants, and investment management and benefit consultant 31 firms in the administration of investments of moneys in the 32 fund. 33 Sec. 10. Section 97A.7, subsection 1, Code 2023, is amended 34 to read as follows: 35 -6- LSB 1571XL (6) 90 ec/rn 6/ 10

S.F. _____ H.F. _____ 1. The board of trustees shall be the trustees of the 1 retirement fund created by this chapter as provided in section 2 97A.8 and shall have full power to invest and reinvest funds 3 subject to the terms, conditions, limitations, and restrictions 4 imposed by subsection 2 and chapters 12F , 12H , and 12J , and 5 12K and subject to like terms, conditions, limitations, and 6 restrictions said trustees shall have full power to hold, 7 purchase, sell, assign, transfer, or dispose of any of the 8 securities and investments of the retirement fund which have 9 been invested, as well as of the proceeds of said investments 10 and any moneys belonging to the retirement fund. The board 11 of trustees may authorize the treasurer of state to exercise 12 any of the duties of this section . When so authorized the 13 treasurer of state shall report any transactions to the board 14 of trustees at its next monthly meeting. 15 Sec. 11. Section 97B.4, subsection 5, Code 2023, is amended 16 to read as follows: 17 5. Investments. The system, through the chief investment 18 officer, shall invest, subject to chapters 12F , 12H , and 12J , 19 and 12K and in accordance with the investment policy and 20 goal statement established by the board, the portion of the 21 retirement fund which, in the judgment of the system, is not 22 needed for current payment of benefits under this chapter 23 subject to the requirements of section 97B.7A . 24 Sec. 12. Section 262.14, unnumbered paragraph 1, Code 2023, 25 is amended to read as follows: 26 The board may invest funds belonging to the institutions, 27 subject to chapters 12F , 12H , and 12J , and 12K and the 28 following regulations: 29 Sec. 13. Section 411.7, subsection 1, Code 2023, is amended 30 to read as follows: 31 1. The board of trustees is the trustee of the fire 32 and police retirement fund created in section 411.8 and 33 shall annually establish an investment policy to govern the 34 investment and reinvestment of the moneys in the fund, subject 35 -7- LSB 1571XL (6) 90 ec/rn 7/ 10

S.F. _____ H.F. _____ to the terms, conditions, limitations, and restrictions 1 imposed by subsection 2 and chapters 12F , 12H , and 12J , and 2 12K . Subject to like terms, conditions, limitations, and 3 restrictions the system has full power to hold, purchase, sell, 4 assign, transfer, or dispose of any of the securities and 5 investments in which the fund has been invested, as well as of 6 the proceeds of the investments and any moneys belonging to the 7 fund. 8 Sec. 14. Section 602.9111, subsection 1, Code 2023, is 9 amended to read as follows: 10 1. So much of the judicial retirement fund as may not be 11 necessary to be kept on hand for the making of disbursements 12 under this article shall be invested by the treasurer of 13 state in any investments authorized for the Iowa public 14 employees’ retirement system in section 97B.7A and subject to 15 the requirements of chapters 12F , 12H , and 12J , and 12K, and 16 the earnings therefrom shall be credited to the fund. The 17 treasurer of state may execute contracts and agreements with 18 investment advisors, consultants, and investment management and 19 benefit consultant firms in the administration of the judicial 20 retirement fund. 21 EXPLANATION 22 The inclusion of this explanation does not constitute agreement with 23 the explanation’s substance by the members of the general assembly. 24 This bill creates new Code chapter 12K, which restricts 25 public funds, defined as the treasurer of state, the state 26 board of regents, the Iowa public employees’ retirement system 27 (IPERS), the public safety peace officers’ retirement system, 28 the statewide fire and police retirement system, and the 29 judicial retirement system, and public entities, defined to 30 include a public fund and the state and political subdivisions 31 of the state, from generally entering into a contract with 32 certain companies engaged in nonpecuniary social investment or 33 a boycott of certain companies. 34 The bill defines “boycott of certain companies” as, without 35 -8- LSB 1571XL (6) 90 ec/rn 8/ 10

S.F. _____ H.F. _____ a reasonable business purpose or as otherwise required under 1 Code chapters 12F, 12H, and 12J, to take any adverse action to 2 penalize or limit business opportunities for companies engaging 3 or doing business with fossil fuel-based energy, timber, 4 mining, production agriculture, firearms, firearm parts, 5 firearm accessories, or ammunition companies. “Nonpecuniary 6 social investment” is defined to mean, except as otherwise 7 provided in new Code chapter 12K in this bill and Code chapters 8 12F, 12H, and 12J, investment or commitment of public funds 9 to further environmental, social, governance, political, or 10 ideological interests without a reasonable business purpose. 11 The bill also defines “scrutinized company” as any company that 12 engages in nonpecuniary social investment on behalf of a public 13 entity or a boycott of certain companies on behalf of a public 14 entity. 15 Concerning public funds, the bill requires each public fund 16 to develop and maintain a list of scrutinized companies that 17 the public fund has entered into a contract with to provide 18 investment or management of securities services for the public 19 fund. Each public fund shall determine this list by March 1, 20 2024, and update it on an annual basis. Once a company is 21 listed on the scrutinized companies list of a public fund, the 22 bill requires the public fund to send a notice to that company 23 relative to the requirements of the bill, to include notice 24 that the company may qualify for termination of a contract for 25 investment or management of securities services by the public 26 fund. 27 New Code section 12K.4 requires that a public fund shall 28 not enter into a contract with a company to provide investment 29 or management of securities services to the public fund of a 30 company on the public fund’s most recent scrutinized company 31 list or of a company that would engage in nonpecuniary social 32 investment or boycott of certain companies on behalf of the 33 public fund. If the public fund has a contract for investment 34 services with a scrutinized company, the public fund shall 35 -9- LSB 1571XL (6) 90 ec/rn 9/ 10

S.F. _____ H.F. _____ proceed to terminate the contract with that company in 18 1 months, as applicable, so long as the company remains a 2 scrutinized company. 3 The bill further requires each public fund to prepare 4 and make available to the public, and file with the general 5 assembly, an annual report, beginning October 1, 2024, 6 concerning actions taken by the public fund relative to the 7 requirements of new Code chapter 12K in the previous fiscal 8 year. 9 New Code section 12K.6 provides that a public entity shall 10 not enter into a contract of $1,000 or more with a scrutinized 11 company included on a scrutinized company list for services 12 including but not limited to the investment or management of 13 securities in which any public funds are invested. 14 The bill further provides that with respect to actions 15 taken in compliance with the bill, including all good-faith 16 determinations regarding companies as required, the public 17 fund shall be immune from any liability and exempt from any 18 conflicting statutory or common law obligations, including 19 any such obligations in respect to choice of asset managers, 20 investment funds, or investments for the public fund. In 21 addition, the bill provides that the requirements of the bill 22 shall not limit the ability of a public fund to terminate 23 any contract of an investment manager or other vendor in the 24 exercise of the public fund’s fiduciary duties. 25 The bill makes conforming changes to Code sections 12.8, 26 35A.13, 97A.7, 97B.4, 262.14, 411.7, and 602.9111. 27 -10- LSB 1571XL (6) 90 ec/rn 10/ 10