An Act Prohibiting Public Investments in Certain Companies
[NOTE: This Act uses standardized language in common use for other kinds of divestment, and incorporates several prohibitions into one, allowing for further prohibitions to be added at a later date.]
Be it enacted by _________________________________________________, and by the authority of the same, as follows:
SECTION 1. (a) As used in this section the following words shall, unless the context clearly requires otherwise, have the following meanings:-
“Board”, the [pension reserves investment management board or equivalent] established pursuant to [any law already establishing such a board].
“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.
“Indirect holdings”, all securities of a company held in an account or fund, such as a mutual fund, managed by 1 or more persons not employed by the public fund, in which the public fund owns shares or interests together with other investors not subject to this section [or relevant section of existing law].
“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.
“Public fund”, the [pension reserves investment management board or equivalent] in charge of managing the pooled investment fund consisting of the assets under the control of the board.
(b) This section applies only to direct and indirect holdings by the public fund.
SECTION 2.
(a) The board shall invest and reinvest the Public fund, as provided for in the trust agreement adopted by the board, or under the standards defined in [relevant law], provided that: (i) no investment of funds shall be made in stocks, securities or other obligations of a company which is engaged in prohibited activities as defined in section 3; (ii) in investing funds the board shall employ an investment manager or investment managers who shall invest the funds of the system; and (iii) no funds shall be invested directly in mortgages or collateral loans.
(b) Clauses (i) to (iii), inclusive, of paragraph (a) shall not apply to the board of any associated retirement system which upon application is determined by the board to have a record of investment management which merits broader investment powers, provided that:—
(i) no funds are to be invested directly in mortgages or in collateral loans;
(ii) subsequent to the date of such determination no new investment of funds shall be made in any bank or financial institution which directly or through any subsidiary has outstanding loans to any individual corporation engaged in prohibited activities as defined in section 3, and no new investment of funds shall be made in the stocks, securities or other obligations of any company so engaged.
SECTION 3. Prohibited investments defined
(a) Notwithstanding any general or special law to the contrary, it shall be the settled policy of the public fund and of the board of the public fund not to invest in any companies with more than a de minimus involvement in the following activities:
- sale of tobacco products
- exploration, extraction, refining, processing or distribution of petroleum, natural gas or coal
- research, development, manufacture or maintenance of nuclear, chemical or biological weapons, landmines or cluster munitions
- manufacture, distribution, or sale of weapons, missiles, bombs, munitions, including rubber or plastic bullets, tear gas, armored vehicles, or military aircraft intended for use by any party involved in plausible violations of the Genocide Convention.
- manufacture, distribution, or sale of firearms to the general public, as defined by [relevant laws]
- other such activities as are clearly harmful to human life and may be, from time to time, added to this list of prohibited activities by the board of the public fund or by the [City Council].
(b) The board of the public fund shall maintain a list of companies with more than a de minimus involvement in the prohibited activities defined in (a) and it shall be known as the “prohibited companies list.” Where more than 25 companies have been identified as engaging in the prohibited activities, the board may limit the list to the 25 companies with the largest involvement in the prohibited activities, as far as it can be determined through publicly available data.
(c) (i) The prohibited companies list shall be updated annually, based on latest publicly available data. (ii) The board of the public fund shall notify all companies on the prohibited companies list annually of the decision not to hold securities in that company.
(d) The board of the public fund shall file a report annually with [the Mayor and with the City Council] that includes: (i) the most recent prohibited companies list; (ii) all investments sold, redeemed, divested or withdrawn in compliance with this act within the preceding year; and (iii) all investments prohibited by this act from which the public fund has not yet divested, (iv) any correspondence received in response to notifications sent to the prohibited companies.
(e) The public fund shall be permitted to cease divesting from companies on the prohibited companies list, to reinvest in those companies, or to continue to invest in those companies from which it has not yet divested upon clear and convincing evidence showing that the value for all assets under management by the public fund becomes equal to or less than 99.5 per cent (50 basis points) of the hypothetical value of all assets under management by the public fund assuming no divestment for any company had occurred under said subsection. 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.
(f) For any cessation of divestment, and in advance of any cessation of divestment authorized by this subsection, the public fund shall provide a written report to the [Mayor, the City Treasurer and the City Council], updated 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 companies identified on the prohibited companies list.
SECTION 4. The public fund shall sell, redeem, divest or withdraw all publicly-traded securities of each company identified pursuant to section 3 of this act within 12 months after the company’s most recent appearance on the prohibited companies list. This section shall not apply to indirect holdings in actively managed investment funds; provided, however, that the public fund shall submit letters to the managers of any such investment funds that contain companies identified pursuant to section 3 of this act, requesting that they remove such companies from the investment fund or create a similar actively managed fund with indirect holdings devoid of such companies.
SECTION 5. Notwithstanding any general or special law to the contrary, with respect to actions taken in compliance with this act, the public fund shall be exempt from any conflicting statutory or common law obligation, including any such obligations with respect to choice of asset managers, investment funds or investments for the public fund’s securities portfolios and all good faith determinations regarding companies identified pursuant to section 3 of this act.
SECTION 6. 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 [City] from all claims, demands, suits, actions, damages, judgments, costs, charges and expenses, including court costs and attorney’s fees, and against all liability, losses, and damages of any nature whatsoever that these present, future, or former board members, officers, employees, or contract investment managers shall or may at any time sustain by reason of any decision to restrict, reduce, or eliminate investments in any prohibited companies identified as such in section 3.