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SB-449 Climate-related financial risk.(2021-2022)

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Date Published: 02/16/2021 09:00 PM
SB449:v99#DOCUMENT


CALIFORNIA LEGISLATURE— 2021–2022 REGULAR SESSION

Senate Bill
No. 449


Introduced by Senator Stern

February 16, 2021


An act to add Division 11 (commencing with Section 26000) to the Financial Code, relating to financial institutions.


LEGISLATIVE COUNSEL'S DIGEST


SB 449, as introduced, Stern. Climate-related financial risk.
Exsiting law generally provides for the regulation of various financial institutions, including banks, credit unions, and finance lenders, by the Department of Financial Protection and Innovation. Existing law requires the Secretary for Environmental Protection to coordinate greenhouse gas emission reductions and climate-change activities in state government.
This bill would require a bank, corporation, credit union, finance lender, insurer, investment advisor, real estate investment trust, and mortgage lender, as those terms are defined, to, before January 1, 2023, and annually thereafter, prepare a climate-related financial risk report, as defined, and to submit to the department, and make available to the public on its own internet website, a copy of that report. The bill would also require those financial institutions to submit to the department a statement affirming that the climate-related financial risk report discloses all climate-related financial risk. By expanding the scope of the crime of perjury, this bill would impose a state-mandated local program.
This bill would also require the Governor to, before January 1, 2023, establish an advisory Climate Change Financial Risk Task Force to assess climate-related financial risk facing investors, corporations, banks, credit unions, mortgage lenders, insurers, and the state. The bill would require the task force to include certain members, including the Commissioner of Financial Protection and Innovation, the Treasurer, the Controller, and the Insurance Commissioner, and would require the task force to, among other things, annually prepare a report containing certain elements regarding climate-related financial risk reports.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: YES  

The people of the State of California do enact as follows:


SECTION 1.

 The Legislature finds and declares all of the following:
(a) Climate change is affecting California’s environment, communities, and economy with impacts including wildfires, sea level rise, extreme weather events, extreme droughts, and associated impacts to the global economy.
(b) These impacts are expected to accelerate in coming decades unless aggressive action is taken both to reduce greenhouse gas emissions and to adapt California’s environments, communities, and economy.
(c) The corporate, financial, and investment advisory sectors contribute and are vulnerable to these climate change-related risks.
(d) Corporations contribute to climate change through greenhouse gas emissions associated with the extraction of raw materials, the production and movement of goods, the transportation of employees and customers, and the operation of facilities and real estate among other activities and are vulnerable to the impacts of climate change on critical infrastructure, supply chains, consumer demand, and physical property.
(e) Financial and investment advisory institutions contribute to climate change through their direction of capital to fossil fuel-related industries and greenhouse gas-generating activities. Both institutions and their clients are vulnerable to the impacts of climate change on global markets, economic activity, and investment valuation.
(f) Failure of corporate, financial, and investment advisory institutions to adequately plan for and adapt to climate change-related risks to their businesses and to the economy will result in significant harm to California and to individual residents and investors, in particular to financially vulnerable Californians who are employed by, live in communities reliant on, or have invested in or obtained financing from these institutions.
(g) California is a global leader in addressing climate change causes and impacts, including the landmark emission reduction target of Senate Bill 32 (2016), the statewide carbon neutrality goal of Senate Bill 100 (2018), the requirement for state public pension funds to analyze and report material climate-related financial risks of Senate Bill 964 (2019), and the state climate investment framework directed by Executive Order No. N-19-19.
(h) Leading voluntary initiatives have begun to develop frameworks for disclosure of climate change- and sustainability-related information, including the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures and the Sustainability Accounting Standards Board.
(i) Other jurisdictions have begun to require private and public entities to develop and disclose sustainability policies, including Illinois’ Sustainable Investing Act and France’s Energy Transition Law Article 173.
(j) Given the corporate, financial, and investment advisory sectors’ contributions to climate change and vulnerability to its impacts on California and the broader economy and the state’s leadership in analyzing, addressing, and mitigating climate risks, it is in the interest of the state to require corporate and financial sector disclosure of climate-related risks and risk-reduction strategies.

SEC. 2.

 Division 11 (commencing with Section 26000) is added to the Financial Code, to read:

DIVISION 11. Climate Risk Disclosures

26000.
 (a) As used in this division:
(1) “Bank” means a California state bank, as defined in Section 1004, that had holdings of at least one hundred million dollars ($100,000,000) in the prior calendar year.
(2) “Climate-related financial risk” means material risk of harm to immediate and long-term financial outcomes due to climate change, including, but not limited to, risks to corporate operations, provision of goods and services, real estate, supply chains, employee health and safety, capital and financial investments, institutional investments, client investments, financial standing of loan recipients and borrowers, shareholder value, insured assets, consumer demand, and financial markets and economic health.
(3) “Climate-related financial risk report” means a report submitted to the Department of Financial Protection and Innovation pursuant to Section 26001.
(4) “Commissioner” means the Commissioner of Financial Protection and Innovation.
(5) “Corporation” means a corporation, as defined in Section 162 of the Corporations Code, that had annual gross revenues of at least one hundred million dollars ($100,000,000) in the prior calendar year.
(6) “Credit union” means a credit union that has received a certificate to act as a credit union pursuant to Article 2 (commencing with Section 14154) of Chapter 2 of Division 5 and had holdings of at least one hundred million dollars ($100,000,000) in the prior calendar year.
(7) “Department” means the Department of Financial Protection and Innovation.
(8) “Finance lender” means a finance lender, broker, program administrator, or mortgage originator licensed pursuant to the California Financing Law (Division 9 (commencing with Section 22000)) that had holdings of at least one hundred million dollars ($100,000,000) in the prior calendar year.
(9) “Insurer” means a provider of insurance that has received a certificate of authority pursuant to Article 3 (commencing with Section 699) of Chapter 1 of Part 2 of Division 1 of the Insurance Code and whose annual national premium was at least one hundred million dollars ($100,000,000) in the prior calendar.
(10) “Investment advisor” means a broker-dealer or investment advisor that has received a certificate of authorization pursuant to Chapter 2 (commencing with Section 25211) of Part 3 of Division 1 of Title 4 of the Corporations Code and had transacted or managed securities for accounts cumulatively totaling at least one hundred million dollars ($100,000,000) in the prior calendar year.
(11) “Mortgage lender” means a mortgage lender that has received a license to operate pursuant to Chapter 2 (commencing with Section 50120) of Division 20 and had mortgage loans cumulatively totaling at least one hundred million dollars ($100,000,000) on its books in the prior calendar year.
(12) “Real estate investment trust” means a real estate investment trust, as defined in Section 23000 of the Corporations Code, that had holdings of at least one hundred million dollars ($100,000,000) in the prior calendar year.
(l3) “Task force” means the Climate Change Financial Risk Task Force.
(b) This section shall become inoperative on January 1, 2025.

26000.
 (a) As used in this division:
(1) “Bank” means a California state bank, as defined in Section 1004, that had holdings of at least fifty million dollars ($50,000,000) in the prior calendar year.
(2) “Climate-related financial risk” means material risk of harm to immediate and long-term financial outcomes due to climate change, including, but not limited to, risks to corporate operations, provision of goods and services, real estate, supply chains, employee health and safety, capital and financial investments, institutional investments, client investments, financial standing of loan recipients and borrowers, shareholder value, insured assets, consumer demand, and financial markets and economic health.
(3) “Climate-related financial risk report” means a report submitted to the Department of Financial Protection and Innovation pursuant to Section 26001.
(4) “Commissioner” means the Commissioner of Financial Protection and Innovation.
(5) “Corporation” means a corporation, as defined in Section 162 of the Corporations Code, that had annual gross revenues of at least fifty million dollars ($50,000,000) in the prior calendar year.
(6) “Credit union” means a credit union that has received a certificate to act as a credit union pursuant to Article 2 (commencing with Section 14154) of Chapter 2 of Division 5 and had holdings of at least fifty million dollars ($50,000,000) in the prior calendar year.
(7) “Department” means the Department of Financial Protection and Innovation.
(8) “Finance lender” means a finance lender, broker, program administrator, or mortgage originator licensed pursuant to the California Financing Law (Division 9 (commencing with Section 22000)) that had holdings of at least fifty million dollars ($50,000,000) in the prior calendar year.
(9) “Insurer” means a provider of insurance that has received a certificate of authority pursuant to Article 3 (commencing with Section 699) of Chapter 1 of Part 2 of Division 1 of the Insurance Code and whose annual national premium was at least one hundred million dollars ($100,000,000) in the prior calendar.
(10) “Investment advisor” means a broker-dealer or investment advisor that has received a certificate of authorization pursuant to Chapter 2 (commencing with Section 25211) of Part 3 of Division 1 of Title 4 of the Corporations Code and had transacted or managed securities for accounts cumulatively totaling at least fifty million dollars ($50,000,000) in the prior calendar year.
(11) “Mortgage lender” means a mortgage lender that has received a license to operate pursuant to Chapter 2 (commencing with Section 50120) of Division 20 and had mortgage loans cumulatively totaling at least fifty million dollars ($50,000,000) on its books in the prior calendar year.
(12) “Real estate investment trust” means any real estate investment trust, as defined in Section 23000 of Part 4 of Title 3 of the Corporations Code, that had holdings of at least fifty million dollars ($50,000,000) in the prior calendar year.
(l3) “Task force” means the Climate Change Financial Risk Task Force.
(b) This section shall become operative on January 1, 2025.

26001.
 Before January 1, 2023, and annually thereafter, a bank, corporation, credit union, finance lender, insurer, investment advisor, real estate investment trust, and mortgage lender shall do all of the following:
(a) Prepare a climate-related financial risk report disclosing both of the following:
(1) Its climate-related financial risk, in accordance with the recommended disclosures contained in the Final Report of Recommendations of the Task Force on Climate-Related Financial Disclosures (June 2017) or any successor thereto.
(2) Its measures adopted to reduce and adapt to climate-related financial risk, including, but not limited to, measures to adapt physical assets and supply chains to climate risks, reduce investment exposure in fossil fuel-based and other greenhouse gas-emitting industries, reduce client, customer, employee, and host community exposure to climate change-related risks, and reduce greenhouse gas emissions in operations.
(b) Submit to the department, and make available to the public on its own internet website, a copy of the report required by this section.
(c) Submit to the department a statement affirming that the report prepared and filed pursuant to this section discloses all climate-related financial risk.

26002.
 (a) Before January 1, 2023, the Governor shall establish an advisory Climate Change Financial Risk Task Force to assess climate-related financial risk facing investors, corporations, banks, credit unions, mortgage lenders, insurers, and the state.
(b) Members of the task force shall include all of the following or their respective designees:
(1) The Controller.
(2) The Treasurer.
(3) The Insurance Commissioner.
(4) The Director of Finance.
(5) The Director of the Governor’s Office of Planning and Research.
(6) The commissioner.
(7) One representative designated by each of the following:
(A) The Board of Administration of the Public Employees’ Retirement System.
(B) The Teachers’ Retirement Board of the State Teachers’ Retirement System.
(C) The President pro tempore of the Senate.
(D) The Speaker of the Assembly.
(c) The Governor or the Governor’s designee shall serve as chair of the task force.
(d) The department shall serve as the administrative staff for the task force.

26003.
 The task force shall do all of the following:
(a) Collect and review climate-related financial risk reports.
(b) Annually prepare a public report that contains all of the following elements:
(1) The disclosure of climate-related financial risk contained in climate-related financial risk reports.
(2) Analysis of the systemic and sector-wide climate-related financial risks facing the state based on the contents of climate-related financial risk reports.
(3) Identification of inadequate or insufficient reports.
(4) Proposals for regulatory actions, policies, or reforms needed to mitigate climate-related financial risks, including, but not limited to, legislative recommendations in order to implement current best practices regarding the disclosure of financial risks resulting from climate change.

26004.
 (a) The department shall make available to the public, on its internet website, all climate-related financial risk reports.
(b) The commissioner may adopt regulations necessary to carry out the provisions of this division.

SEC. 3.

 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.