80R908 SGA-F

By: McClendon H.B. No. 419

A BILL TO BE ENTITLED

AN ACT

relating to divestment by the Employees Retirement System of Texas and the Teacher Retirement System of Texas of certain investments related to the Republic of Sudan.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subtitle A, Title 8, Government Code, is amended by adding Chapter 806 to read as follows: CHAPTER 806. INVESTMENTS RELATED TO SUDAN SUBCHAPTER A. GENERAL PROVISIONS

Sec. 806.001. DEFINITIONS. In this chapter:

(1) "Board" means the board of trustees of the Employees Retirement System of Texas or the board of trustees of the Teacher Retirement System of Texas, as applicable.

(2) "Business operations" means the maintenance of personnel or the maintenance, sale, or lease of equipment, facilities, or any other apparatus of business or commerce, including the ownership or possession of real or personal property.

(3) "Company" means a sole proprietorship, organization, association, corporation, partnership, venture, or other entity, or its subsidiary or affiliate, that exists for profit-making purposes or to otherwise secure economic advantage.

(4) "Government of Sudan" includes a department, bureau, or other agency of Sudan or its instrumentalities.

(5) "Investment" means:

(A) the purchase, ownership, or control of:

(i) stock of a company; or

(ii) a corporate bond or other debt instrument issued by a company; or

(B) the commitment of money or other assets to a company, including a loan or extension of credit to that company.

(6) "Oil-related activity" includes the export of oil, oil extraction or production, exploration for oil, or the construction or maintenance of a pipeline, refinery, or other oil field infrastructure.

(7) "Public retirement fund" means the Employees Retirement System of Texas trust fund described by Section 815.310 or the assets of the Teacher Retirement System of Texas described by Section 825.306.

(8) "Public retirement system" means the Employees Retirement System of Texas or the Teacher Retirement System of Texas.

(9) "Sudan" means the Republic of the Sudan or a territory under the administration or control of Sudan, including the Darfur region.

Sec. 806.002. APPLICABILITY. This chapter applies only to a public retirement system.

Sec. 806.003. EXEMPT INVESTMENTS. Except for reports required under Section 806.059, this chapter does not apply to an investment in a company that:

(1) does not have active business operations in Sudan;

(2) does not meet the criteria describing a disfavored company under Section 806.051;

(3) is primarily engaged in supplying goods or services intended to relieve human suffering in Sudan;

(4) promotes health, education, journalistic, or religious activities in or welfare in the western, eastern, or southern regions of Sudan; or

(5) is a United States company that is authorized by the federal government to have business operations in Sudan.

Sec. 806.004. FIDUCIARY RESPONSIBILITIES. A board is not required to take an action prescribed by this chapter unless the board determines, in good faith, that the action is consistent with the fiduciary responsibilities of the board under Section 67, Article XVI, Texas Constitution. [Sections 806.005-806.050 reserved for expansion] SUBCHAPTER B. BOARD DUTIES REGARDING INVESTMENTS

Sec. 806.051. INVESTMENTS IN DISFAVORED COMPANY PROHIBITED. (a) Except for an investment that is exempt under Section 806.003, a board may not invest money from a public retirement fund in a disfavored company. In this chapter, a disfavored company is a company that meets the criteria under Subsection (b), (c), (d), or (e).

(b) A company is a disfavored company if it:

(1) is owned or controlled, directly or indirectly, by the government of Sudan;

(2) is established or organized under the laws of Sudan; or

(3) has its principal place of business in Sudan.

(c) A company is a disfavored company if it:

(1) is engaged in business operations, excluding oil-related activities, in Sudan;

(2) lacks significant business operations in the eastern, southern, and western regions of Sudan; and

(3) has not taken substantial action, as described by Section 806.052, related to the government of Sudan or has demonstrated complicity in the Darfur genocide.

(d) A company is a disfavored company if it:

(1) is engaged in oil-related, energy-related, or power-related activities in Sudan or contracts with a company that has business operations in the oil, energy, or power sectors of Sudan; and

(2) has not taken substantial action, as described by Section 806.052, related to the government of Sudan or has demonstrated complicity in the Darfur genocide.

(e) A company is a disfavored company if it:

(1) supplies weapons, arms, or military defense supplies in Sudan; or

(2) supplies equipment in Sudan that may be readily used for military purposes, including radar systems and military-grade transport vehicles, and has not implemented safeguards to prevent the use of the equipment for military purposes.

Sec. 806.052. SUBSTANTIAL ACTION IN REGARD TO SUDAN. In this chapter, a company is considered to have taken substantial action related to the government of Sudan if the company:

(1) boycotts the government of Sudan;

(2) curtails its business operations in Sudan;

(3) sells a substantial amount of company assets, equipment, or real and personal property located in Sudan; or

(4) undertakes significant humanitarian efforts in the eastern, southern, or western regions of Sudan.

Sec. 806.053. RESEARCH; REPORTS. (a) A board shall contract with one or more reputable and neutral third-party research firms to determine which companies have business operations in Sudan.

(b) The research firms shall obtain data on a majority of companies with business operations in Sudan.

(c) On or before March 30, 2008, the research firms shall report any findings to the board. If there is a change of circumstances in Sudan after the date of that report, the research firms shall submit further findings to the board.

Sec. 806.054. BOARD REVIEW AND RELATED ACTIONS. (a) Not later than September 30, 2008, each board shall:

(1) review publicly available information and the reports provided under Section 806.053 regarding companies with business operations in Sudan; and

(2) send written notice to any disfavored company as provided by Section 806.057.

(b) By the date of the first board meeting after the completion of the actions in Subsection (a), a board must determine if public retirement fund money is invested in a disfavored company.

(c) If a board determines that public retirement fund money is invested in a disfavored company, the board shall find financially equivalent alternative investments to replace any investment prohibited under Section 806.051.

Sec. 806.055. MIXED INVESTMENTS. (a) Notwithstanding Section 806.054, if a board's investment in a company disfavored under Section 806.051 is limited to investment through an externally and actively managed commingled fund, the board shall contact the fund manager in writing and request that the fund manager remove the company from the fund in the manner described by Sections 806.057 and 806.058.

(b) If the fund manager creates a fund devoid of disfavored companies, the transfer of board investments from the prior fund to the fund devoid of disfavored companies satisfies the board's duties under Sections 806.057 and 806.058.

(c) If the board determines that the new fund is not financially equivalent to the prior fund, the board shall include the reasons for that determination in the report under Section 806.059.

Sec. 806.056. PRIVATE EQUITY INVESTMENTS. (a) Each board shall make a good faith effort to determine if a private equity investment is disfavored under Section 806.051.

(b) If a board determines that a private equity investment is disfavored, the board may consider whether the private equity investment is subject to Sections 806.057 and 806.058.

(c) If a board determines that a private equity investment is disfavored and the board does not take action under Sections 806.057 and 806.058, the board shall include the reasons for its decision in the report under Section 806.059.

Sec. 806.057. BOARD NOTIFICATION AND MONITORING OF DISFAVORED COMPANIES. (a) Unless an investment is exempt under Section 806.003, each board, in its capacity of shareholder or investor, shall:

(1) notify any company described as disfavored under Section 806.051 that the company may be subject to divestment; and

(2) permit the company to respond to the publicly available information considered by the board and any pertinent report provided under Section 806.053.

(b) The board shall request that the company take substantial action related to the government of Sudan, as described by Section 806.052, not later than the 90th day after the date the board notifies the company under this section.

(c) If the board determines that a company has taken substantial action or has made sufficient progress toward substantial action before the expiration of the 90-day period under Subsection (b), the board shall postpone divestment. The board, at intervals not to exceed 90 days, shall continue to monitor and review the progress of a company that is making progress toward the completion of substantial action.

(d) A company is subject to divestment if the company fails to:

(1) complete substantial action as requested under Subsection (b); or

(2) make sufficient progress toward substantial action during a 90-day period as described by Subsection (b) or (c).

Sec. 806.058. DIVESTMENT. (a) If a company notified under Section 806.057 fails to take substantial action related to the government of Sudan, as described by Section 806.052, by the date required under Section 806.057, the board:

(1) may not make additional investments or renew existing investments in the company; and

(2) shall divest the public retirement system of existing investments in the company not later than 18 months after that date.

(b) The board shall conduct the divestment in a manner consistent with the board's fiduciary responsibilities under Section 67, Article XVI, Texas Constitution.

Sec. 806.059. REPORTS TO LEGISLATURE. Not later than December 31 of each year, each board shall file a cumulative report with the committee in each house of the legislature having primary jurisdiction over public retirement systems. The report must include for each year in which the report is being issued:

(1) a list of investments the public retirement system has in any company with business operations in Sudan, including:

(A) the company's name and the amount of the company's stock, bonds, securities, or other evidence of indebtedness held by the public retirement system on January 1 and October 1 of that calendar year;

(B) a detailed summary of the company's business operations in Sudan and whether that company is disfavored under Section 806.051; and

(C) the amount by which the board by October 1 has reduced its investments in a disfavored company from the amount held on January 1 of that calendar year;

(2) the date by which the board anticipates that the board will eliminate all investments in a disfavored company if the board has not eliminated all investments in the company, or the reasons why a sale or transfer of investments in that company is inconsistent with the fiduciary responsibilities of the board under Section 67, Article XVI, Texas Constitution;

(3) a detailed summary of board actions taken under this chapter regarding investments;

(4) a list of companies with business operations in Sudan in which the board has sold or transferred all of its investments; and

(5) a list of companies with business operations in Sudan in which the board is invested that are exempt from the application of this chapter and the reason for the exemption. [Sections 806.060-806.100 reserved for expansion] SUBCHAPTER C. EXPIRATION; INDEMNIFICATION

Sec. 806.101. EXPIRATION. Except as provided by Section 806.102, this chapter expires on the earliest of:

(1) the date on which the United States Department of State and the Congress of the United States determine that the government of Sudan has halted the genocide in Darfur for at least 12 months;

(2) the date on which the United States revokes its sanctions against Sudan; or

(3) September 30, 2013.

Sec. 806.102. INDEMNIFICATION OF RETIREMENT SYSTEMS, BOARDS, EMPLOYEES, AND OTHERS. (a) The state shall hold harmless and indemnify to the limits allowed under Chapter 104, Civil Practice and Remedies Code, or other applicable law, a person who is a current or former board member of a public retirement system, a state officer or employee, a research firm described by Section 806.053, or an investment manager under contract with a public retirement system from any claim, demand, suit, action, award of damages, judgment, cost, charge and expense, including court costs and attorney's fees, and against all liability, loss, and damage of any nature that the person at any time sustains because of a decision to restrict, reduce, or eliminate investments under Section 806.051.

(b) This section does not waive a defense, immunity, or jurisdictional bar available to the state or its officers, employees, or contractors.

SECTION 2. The first report to the appropriate committees of the legislature required under Section 806.059, Government Code, as added by this Act, must be filed not later than December 31, 2008.

SECTION 3. This Act takes effect immediately if it receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for immediate effect, this Act takes effect September 1, 2007.