SECTION 1.
The Legislature finds and declares as follows:(a) Climate change is a long-term problem that will affect our environment, health, and economy for decades to come.
(b) Effects of global climate change that scientists predicted in the past are already occurring—sea ice has been lost, sea levels are rising at accelerated rates, and longer, more intense heat waves and extreme weather events are occurring.
(c) As global temperatures continue to rise, these effects will likely accelerate. Heat waves, droughts, and hurricanes are all projected to grow in both frequency and intensity as climate change progresses.
(d) The financial sector is not insulated from the adverse effects of climate change.
(e) California is a global leader in addressing climate change and has consistently striven to protect the physical, social, and economic resources of all Californians, as most recently exemplified by the passage of Senate Bills 32 and 350 of the 2015–16 Regular Session.
(f) Climate change presents an array of material financial risks, including transition risk, physical risk, and litigation risk, that reasonable investors must take into account when making investment decisions. Failure to acknowledge and address these risks will result in exposure to subsequent liabilities and financial risk.
(g) If global temperature rise is to be limited to no more than 2 degrees Celsius, or the aspirational target of 1.5 degrees proposed in the COP 21 agreement now in effect, governments must act to limit warming and hasten the transition to a low-carbon economy by halting the extraction and development of carbon reserves. This regulatory risk will affect major sectors of the global economy.
(h) In the retirement system context, these risks are especially salient. Retirement boards have the fiduciary duty to administer retirement funds solely in the interest of system participants and their beneficiaries. In order to meet this requirement and ensure sufficient funding of both current and future retirees’ financial benefits, retirement boards must consider both short-term and long-term effects and risks of retirement fund investments.
(i) If climate change and carbon emissions continue on their current trajectories, both acute and chronic weather-related activity will greatly compromise the ability of businesses that do not account for these changes to reliably generate returns. Pension funds’ influence in the markets can induce firms to accurately report their carbon risk to the public.
(j) Given the potentially catastrophic consequences of climate change, the documented social and economic cost of carbon, and the emerging body of literature on the material financial risks of climate change, retirement boards simply cannot disregard financial climate risks.
(k) Governance directives of California’s largest pension funds, the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS), advise the funds’ boards to take climate risk, among other risks, into account when making investment decisions. These directives include CalPERS Investment Belief 9 and CalSTRS “Environmental” Risk Factor.
(l) This bill would ensure that the public is informed whether future boards will continue to consider climate-related financial risk in investment decisions.