H.B. NO.



H.D. 1











relating to the employees' retirement system.





SECTION 1. The employees' retirement system currently invests public funds in fossil fuel companies that are contributing to rising costs to taxpayers and losses to Hawaii's largest public-sector pension plan.

Fossil fuel investments are already a liability. Over the past five years, the Dow Jones Energy Sector of the S&P 500 has underperformed the broader market by more than thirteen per cent, providing a return of -3.41 per cent versus the broader market, which provided a return of +10.07 per cent. The energy sector also underperformed the broader market at every milestone including ten years, five years, three years, and one year.

Furthermore, investments in the fossil fuel coal sector have already collapsed over the course of just a few years. A $1,000 investment in the nation's three largest coal companies in 2011 was worth less than $3 in 2015.

Studies by MSCI, Fossil Free Indexes, Aperio Group, Advisor Partners, and Impax all demonstrate that fossil fuel divestment is not risky; does not weaken returns on investments; and can, in fact, protect investments and increase returns. In addition, Citigroup, AXA Investment Managers, Goldman Sachs, Standard and Poor's, and HSBC have all warned of the carbon bubble and ensuing stranded assets.

Paul Fisher of the Bank of England has stated that "As the world increasingly limits carbon emissions, and moves to alternative energy sources, investments in fossil fuels -- a growing financial market in recent decades -- may take a huge hit." Former United States Treasury Secretary Hank Paulson has observed that "We're staring down a climate bubble that poses enormous risks to both our environment and economy". Former Securities and Exchange Commissioner Bevis Longstreth has commented that "The risks [to portfolios] are many and growing" and "Fiduciaries have a compelling reason, on financial grounds alone, to divest these holdings before the inevitable correction occurs". Mark Carney, Governor of the Bank of England, has warned investors of "potentially huge" losses and the danger of the assets of fossil fuel companies being left "stranded" by tougher rules to curb climate change. The former chairman of Royal Dutch Shell remarked that selling oil stocks is a rational response to the failure of the oil industry and stated that "Divestment is an entirely rational market approach if you think that there are better uses for your funds."

Over five hundred institutions have or are divesting their funds, notably the Norwegian Sovereign Wealth Fund ($900,000,000,000); the Rockefeller Brothers Fund ($860,000,000,000); the Dutch Pensions Fund; CalPERS and CalSTRS, the two largest state pension funds in the United States; major cities, such as San Francisco, Cambridge, Seattle, Portland, Boulder, Santa Fe, Madison, Oxford, Palo Alto, and Melbourne. The University of Hawaii board of regents voted unanimously in 2014 to divest, as have dozens of other universities and faith-based institutions, such as the United Church of Christ, totaling $3,400,000,000,000 already divested from investments in fossil fuels.

The legislature finds that it is the mission of the employees' retirement system to support its beneficiaries without harming taxpayers. However, the employees' retirement system currently invests public funds in fossil fuel companies that are contributing to rising costs to the public. Fossil fuel companies are a significant source of greenhouse gases that accelerate climate change, which is eroding beaches, diminishing freshwater supplies, and already costing taxpayers millions of dollars annually to mitigate its effects.

Carbon regulations continue to grow globally. The world now has over eight hundred laws regarding climate change, a near doubling since 2009. China, the world's biggest greenhouse gas emitter, plans to cap coal consumption in 2020 and allow carbon dioxide emissions to peak by 2030. By 2030, President Barack Obama's administration's Clean Power Plan will reduce power plant emissions by thirty-two per cent from 2005 levels. Within a decade, automobiles sold in the United States must achieve an average of 54.5 miles per gallon, nearly double current standards. Automobiles consume over sixty per cent of the oil used in the United States. These legislative and regulatory restrictions on fossil fuels will inevitably and greatly increase after the international agreement reached at the December 2015 United Nations Climate Change Conference in Paris. Further evidence of this growing regulatory regime, which will continue to undermine the value of fossil fuel stocks, is shown by President Obama's recent moratorium on new leases for coal mines on federal land, the source of forty per cent of U.S. coal. Overall, the majority of the $48,000,000,000,000 needed to meet global power demand over the next twenty years will come from renewable sources, not fossil fuels.

Hawaii's one hundred per cent renewable portfolio standards goal pursuant to section 269-92, Hawaii Revised Statutes, creates the opportunity for Hawaii to lead the nation in the shift to renewable fuels and to create a new economic sector of well-paying jobs. As Hawaii's largest public-sector pension plan, the employees' retirement system has already adopted socially responsible investing as a goal. These socially responsible investing rules give the employees' retirement system a duty to invest in ways that support the State's energy priorities,

The legislature finds that it is in the public interest to examine the feasibility of the divestment of the employees' retirement system from fossil fuel investments and assess the financial risk of delaying divestment from fossil fuels.

SECTION 2. Chapter 88, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"88-    Prohibited investments. Notwithstanding section 88-119, investments shall not be made in the corporate obligations, preferred and common stocks, or other securities and futures contracts of any coal company."

SECTION 3. (a) The board of trustees of the employees' retirement system shall, working in conjunction with a reputable firm of investment consultants with experience in managing fossil fuel-free portfolios, prepare and submit a report to the legislature prior to the convening of the regular session of 2017.

(b) The report shall:

(1) Assess the impact on the employees' retirement system's portfolio of investments in scrutinized companies over the past one, three, and five years and quantify the losses or gains incurred by such investments, compared to the portfolio rebalanced with those investments distributed in other sectors; and

(2) Assess the future of fossil fuel investments on the basis of analyses by reputable investment advisors and assess the potential range of effects of fossil fuel divestment on the employees' retirement system over the next five years.

(c) As used in this section, "scrutinized companies" means a company identified by a Global Industry Classification Standard code in one of the following sectors:

(1) Coal and consumable fuels;

(2) Integrated oil and gas; or

(3) Oil and gas exploration and production.

(d) The report shall be submitted to the legislature no later than December 1, 2016.

SECTION 4. There is appropriated out of the general revenues of the State of Hawaii the sum of $         or so much thereof as may be necessary for fiscal year 2016-2017 for the report required by section 3 of this Act.

The sum appropriated shall be expended by the employees' retirement system for the purposes of this Act.

SECTION 5. This Act shall take effect on July 1, 2016.


Report Title:

Employees' Retirement System; Investments; Coal; Study



Prohibits the ERS from investing in coal companies. Requires the ERS to prepare and submit a report to the Legislature regarding divestment from fossil fuel investments. (HB1511 HD1)




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