HB2405 – Integrating sustainability factors into the State Investment Board’s activities.
Prime Sponsor – Representative Duerr; (D; 1st District; Bothell) (Co-Sponsors Doglio, Ramel, Berry – Ds)
Current status – Referred to Appropriations.
Next step would be – Scheduling a hearing.
Legislative tracking page for the bill.

Summary –
The bill would require the State Investment Board to integrate sustainability factors into its investment decision making, investment analysis, portfolio construction, due diligence, and investment ownership. Those would include specified corporate governance and leadership factors, and environmental factors that might have an adverse or positive financial impact on investment performance. They’d include social capital factors that impact relationships with outside parties, including human rights, customer welfare, customer privacy, data security, access and affordability, selling practices and product labeling, community reinvestment, and community relations. They’d also include human capital factors such as labor practices, responsible contractor and responsible bidder policies, employee health and safety, employee engagement, diversity and inclusion, and incentives and compensation. They’d include business model and innovation factors that reflect an ability to plan and forecast opportunities and risks, such as supply chain management, materials sourcing and efficiency, business model resilience, product design and life-cycle management, and physical impacts of climate change.

The bill would allow analyzing these factors in a variety of ways, including considering direct financial impacts and risks; legal, regulatory, and policy impacts and risks; performance in relation to industry norms, best practices, and competitive drivers; and effects of stakeholder engagement.

It would have the Board develop and publish proxy voting guidelines that recognize climate change as a business and systemic risk, and use its authority as a stockholder to mitigate these risks. The bill says it should support shareholder resolutions that call for entities to reduce activities that contribute to climate change, and provide public, written comments explaining why the board chose not to support them when it didn’t.

The bill would require an annual report from the Board to the House Capital Budget Committee and Senate Ways & Means on the environmental sustainability of its investment decision-making process, focusing on its process for identifying climate change-related risks and assessing the financial impact those have on the Board’s operations. The report would have to include actions the Board is taking to manage the risks climate change poses to its investment portfolio and strategies; its operations, and Federal climate-related reporting requirements.

The bill would require the State Auditor to conduct a comprehensive biannual evaluation of the Board’s proxy voting guidelines on climate risks, including consideration of how well the Board was conforming to those and to the bill’s investment guidelines. It would report to the Legislature on proxy votes cast in ways that promoted emissions targets required for keeping global temperature increases below 1.5 degrees Celsius, instances where proxy votes cast were effective in directing or maintaining guidance to directors to pursue the goals in those guidelines, the overall efficacy of the proxy voting guidelines, and recommendations for improvements.