Washington HB 2405: Concerning sustainability factors in investment strategies and proxy voting by the Washington state investment board.

Bill Text

AN ACT Relating to sustainability factors in investment 1
strategies and proxy voting by the Washington state investment board; 2
amending RCW 43.33A.110, 43.33A.140, and 43.33A.150; adding a new 3
section to chapter 43.09 RCW; and creating a new section.4
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:5
NEW SECTION. Sec. 1. The legislature finds that climate change 6
presents significant risks to financial stability including to 7
Washington state's public funds investment portfolios. Integration of 8
sustainability factors such as corporate governance and leadership, 9
environmental, social, and human capital factors relating to 10
investments is vital for evaluating risk and maximizing the 11
performance of public funds. Such sustainability factors are 12
indicative of the overall performance of an investment and strong 13
indicators of its long-term value. Investors of public funds have a 14
duty to recognize, evaluate, and address sustainability factors that 15
may affect investment performance.16
The legislature recognizes that the Washington state investment 17
board regularly outperforms peer states and delivers returns that 18
exceed benchmarks and benefit retirees and public funds. The 19
Washington state investment board has a long history of integrating 20
financially material sustainability factors into their investment 21
H-2408.2
HOUSE BILL 2405
State of Washington 68th Legislature 2024 Regular Session
By Representatives Duerr, Doglio, Ramel, and Berry
Read first time 01/17/24. Referred to Committee on Appropriations.
p. 1 HB 2405

practice as a part of their fiduciary duty. The Washington state 1
investment board's 2023 sustainability report recognizes that the 2
financial risks of climate change are already materializing, 3
especially in industries like insurance, and that the transition to a 4
low-carbon economy offers many opportunities for investing.5
The legislature further finds that transparency and 6
accountability are essential parts of Washington state's history and 7
governance. Providing clear guidance and access to information are 8
fundamental to fostering public trust and ensuring that government 9
entities are held accountable now and into the future.10
The legislature intends to provide transparency to the public 11
regarding the guidance, definitions, and use of sustainability 12
factors in investment strategies and proxy voting by the Washington 13
state investment board. This will build upon the work of the 14
Washington state investment board to ensure that public fund 15
investments prudently integrate sustainability factors into their 16
decision making in order to maximize financial returns, minimize 17
risks, and contribute to a more just, accountable, and sustainable 18
state.19
Sec. 2. RCW 43.33A.110 and 1994 c 154 s 310 are each amended to 20
read as follows:21
(1) The state investment board may make appropriate rules and 22
regulations for the performance of its duties. The board shall 23
establish investment policies and procedures designed exclusively to 24
maximize return at a prudent level of risk. However, in the case of 25
the department of labor and industries' accident, medical aid, and 26
reserve funds, the board shall establish investment policies and 27
procedures designed to attempt to limit fluctuations in industrial 28
insurance premiums and, subject to this purpose, to maximize return 29
at a prudent level of risk. The board shall adopt rules to ensure 30
that its members perform their functions in compliance with chapter 31
42.52 RCW. Rules adopted by the board shall be adopted pursuant to 32
chapter 34.05 RCW.33
(2) In determining a prudent level of risk for investment 34
policies as required in subsection (1) of this section, the board 35
must integrate sustainability factors into its investment decision 36
making, investment analysis, portfolio construction, due diligence, 37
and investment ownership.38
p. 2 HB 2405

(3) When updating and reviewing existing sustainability 1
frameworks, the board should strive to incorporate at a minimum the 2
following sustainability factors:3
(a) Corporate governance and leadership factors, such as the 4
independence of boards and auditors, the expertise and competence of 5
corporate boards and executives, systemic risk management practices, 6
executive compensation structures, transparency and reporting, 7
leadership diversity, regulatory and legal compliance, shareholder 8
rights, and ethical conduct;9
(b) Environmental factors that may have an adverse or positive 10
financial impact on investment performance, such as greenhouse gas 11
emissions, air quality, energy management, water and wastewater 12
management, waste and hazardous materials management, and ecological 13
impacts;14
(c) Social capital factors that impact relationships with key 15
outside parties, such as customers, local communities, the public, 16
and the government, which may impact investment performance. Social 17
capital fa