Text of MO SB 436 (2023)

EXPLANATION-Matter enclosed in bold-faced brackets [thus] in this bill is not enacted and is intended to be omitted in the law. FIRST REGULAR SESSION SENATE BILL NO. 436 102ND GENERAL ASSEMBLY INTRODUCED BY SENATOR CARTER. 1663S.03I KRISTINA MARTIN, Secretary AN ACT To repeal sections 105.687 and 105.688, RSMo, and to enact in lieu thereof two new sections relating to fiduciary duties for investments of public employee retirement systems. Be it enacted by the General Assembly of the State of Missouri, as follows: Section A. Sections 105.687 and 105.688, RSMo, are 1 repealed and two new sections enacted in lieu thereof, to be 2 known as sections 105.687 and 105.688, to read as follows: 3 105.687. As used in sections 105.687 to 105.689, the 1 following terms mean: 2 (1) "Equity interests", limited partnership interests 3 and other interests in which the liability of the investor 4 is limited to the amount of the investment, but does not 5 include general partnership interests or other interests 6 involving general liability of the investor; 7 (2) "Fiduciary commitment", any evidence of an 8 investment fiduciary's purpose in managing assets as an 9 investment fiduciary, including, but not limited to, any of 10 the following: 11 (a) Advertising, statements, explanations, reports, 12 letters to clients, communications with portfolio companies, 13 statements of principles, or commitments; or 14 (b) Participation in, affiliation with, or status as a 15 signatory to, any coalition, initiative, joint statement of 16 principles, or agreement; 17 SB 436 2 (3) "Financial", prudently determined by an investment 18 fiduciary to have a material effect on the financial risk or 19 the financial return of an investment, but does not include 20 any action taken, or factor considered, by an investment 21 fiduciary with any purpose whatsoever to further social, 22 political, or ideological interests. An investment 23 fiduciary may be determined to have taken an action, or 24 considered a factor, with a purpose to further social, 25 political, or ideological interests based upon evidence 26 indicating such a purpose, including, but not limited to, 27 any fiduciary commitment to further, through portfolio 28 company engagement, board or shareholder votes, or otherwise 29 as an investment fiduciary, any of the following beyond what 30 controlling federal or state law requires: 31 (a) Eliminating, reducing, offsetting, or disclosing 32 greenhouse gas emissions; 33 (b) Instituting or assessing corporate board, or 34 employment, composition, compensation, or disclosure 35 criteria that incorporates characteristics protected in 36 chapter 213; 37 (c) Divesting from, limiting investment in, or 38 limiting the activities or investments of, any company, for 39 failing, or not committing, to meet environmental standards 40 or disclosures; 41 (d) Access to abortion, sex or gender reassignment 42 treatment, or transgender surgery; or 43 (e) Divesting from, limiting investment in, or 44 limiting the activities or investments of, any company that 45 engages in, facilitates, or supports the manufacture, 46 import, distribution, marketing or advertising, sale, or 47 lawful use of firearms, ammunition or components parts and 48 accessories of firearms or ammunition; 49 SB 436 3 [(2)] (4) "Invest" or "investment", utilization of 50 money in the expectation of future returns in the form of 51 income or capital gain; 52 [(3)] (5) "Investment fiduciary", a person who either 53 exercises any discretionary authority or control in the 54 investment of a [public employee retirement] system's assets 55 or who renders for a fee advice for a [public employment 56 retirement] system, including any investment manager or 57 proxy advisor; 58 [(4)] (6) "Small business", an independently owned and 59 operated business as defined in Title 15 U.S.C. Section 632A 60 and as described by Title 13 CFR Part 121; 61 [(5)] (7) "Small business investment company", an 62 incorporated body or a limited partnership under Section 301 63 of Title III of the Small Business Investment Act of 1958, 64 15 U.S.C. 681; 65 [(6)] (8) "System", a public employee retirement 66 system established, maintained, or offered by the state or 67 any political subdivision of the state, or instrumentality 68 of the state, including, but not limited to, any department, 69 county, city, school district, college, or university; 70 [(7)] (9) "Venture capital firm", a corporation, 71 partnership, proprietorship, or other entity, the principal 72 businesses of which is the making of investments in small 73 businesses, either directly or indirectly by investing in 74 entities the principal business of which is the making of 75 investments in small businesses. 76 105.688. 1. The assets of a system may be invested, 1 reinvested and managed by an investment fiduciary subject to 2 the terms, conditions and limitations provided in sections 3 105.687 to 105.689. In making and supervising investments 4 of a system, an investment fiduciary shall discharge his or 5 SB 436 4 her duties in the interest of the participants in the system 6 and their beneficiaries for the exclusive purpose of 7 providing financial benefits to participants in the system 8 and their beneficiaries and defraying reasonable expenses of 9 administering the system and shall: 10 (1) Act with the same care, skill, prudence, and 11 diligence under the circumstances then prevailing that a 12 prudent person acting in a similar capacity and familiar 13 with those matters would use in the conduct of a similar 14 enterprise with similar aims; 15 (2) Act with due regard for the management, 16 reputation, and stability of the issuer and the character of 17 the particular investments being considered; 18 (3) Make investments for the purposes of providing 19 benefits to participants and participants' beneficiaries, 20 and of defraying reasonable expenses of investing the assets 21 of the system; 22 (4) Give appropriate consideration to those facts and 23 circumstances that the investment fiduciary knows or should 24 know are relevant to the particular investment or investment 25 course of action involved, including the role of the 26 investment or investment course of action plays in that 27 portion of the system's investments for which the investment 28 fiduciary has responsibility. For purposes of this 29 subdivision, "appropriate consideration" shall include, but 30 is not necessarily limited to a determination by the 31 investment fiduciary that a particular investment or 32 investment course of action is reasonably designed, as part 33 of the investments of the system, to further the purposes of 34 the system, taking into consideration the risk of loss and 35 the opportunity for gain or other return associated with the 36 investment or investment course of action; and consideration 37 SB 436 5 of the following factors as they relate to the investment or 38 investment course of action: 39 (a) The diversification of the investments of the 40 system; 41 (b) The liquidity and current return of the 42 investments of the system relative to the anticipated cash 43 flow requirements of the system; and 44 (c) The projected return of the investments of the 45 system relative to the funding objectives of the system; 46 (5) Give appropriate consideration to investments 47 which would enhance the general welfare of this state and 48 its citizens if those investments offer the safety and rate 49 of return comparable to other investments available to the 50 investment fiduciary at the time the investment decision is 51 made. 52 2. An investment fiduciary appointed by the system 53 shall be subject to the same fiduciary duties as a member of 54 the board of trustees of a system. 55 3. An investment fiduciary shall take into account 56 only financial factors when discharging his or her duties 57 with respect to a system. 58 4. All shares held, directly or indirectly, by or on 59 behalf of a system, the participants in a system, and 60 participants' beneficiaries shall be voted solely in the 61 financial interest of participants in the system and their 62 beneficiaries. 63 5. Unless no economically practicable alternative is 64 available, the board of trustees that establishes or 65 maintains a system shall not grant proxy voting authority to 66 any person who is not a part of the board of trustees, 67 unless that person has a practice of, and in writing commits 68 SB 436 6 to, following guidelines that match the system's obligation 69 to act solely upon financial factors. 70 6. Unless no economically practicable alternative is 71 available, a system's assets shall not be entrusted to an 72 investment fiduciary, unless that investment fiduciary has a 73 practice of, and in writing commits to, following 74 guidelines, when engaging with portfolio companies and 75 voting shares or proxies, that match the system's obligation 76 to act solely upon financial factors. 77 7. Unless no economically practicable alternative is 78 available, the system shall not adopt a practice of 79 following the recommendations of a proxy advisor or other 80 service provider, unless such advisor or service provider 81 has a practice of, and in writing commits to, following 82 proxy voting guidelines that match the system's obligation 83 to act solely upon financial factors. 84 8. All proxy votes shall be tabulated and reported 85 annually to the board of trustees of a system. For each 86 vote, the report shall contain a vote caption, the system's 87 vote, the recommendation of company management, and, if 88 applicable, the proxy advisor's recommendation. These 89 reports shall be posted on a publicly available webpage on 90 the system's website. 91 9. The provisions of this section, or any contract 92 subject to the provisions of this section, may be enforced 93 by the attorney general. If the attorney general has 94 reasonable cause to believe that a person has engaged in, is 95 engaging in, or is about to engage in, a violation of this 96 section, the attorney general may require such person to 97 file: 98 SB 436 7 (1) A statement or report in writing, under oath, in a 99 form prescribed by the attorney general, as to all the facts 100 and circumstances concerning the violation; and 101 (2) Such other data and information as the attorney 102 general deems necessary. 103 10. A system, a participant of a system, or a 104 participant's beneficiary may bring an action for damages or 105 injunctive relief against any person that has engaged in, is 106 engaging in, or is about to engage in, a violation of this 107 section. 108 11. In addition to any other remedies available, a 109 company who serves as an investment fiduciary and who 110 violates this section shall be obligated to pay damages to 111 the state in an amount equal to three times all moneys paid 112 to the company by the system for the company's services. 113 