House File 2 - Introduced HOUSE FILE 2 BY STONE , HOLT , WHEELER , COLLINS , MOORE , JENEARY , VONDRAN , FISHER , DUNWELL , MEGGERS , WULF , SHIPLEY , BRADLEY , GOLDING , GRABER , JOHNSON , DEYOE , MOMMSEN , BODEN , KAUFMANN , FRY , ANDREWS , THOMSON , HENDERSON , WOOD , HORA , OSMUNDSON , WINDSCHITL , GRASSLEY , BOSSMAN , and GERHOLD A BILL FOR An Act relating to public contracts, public fund investing, 1 and lending practices with certain companies that engage 2 in economic boycotts based on environmental, social, or 3 governance criteria, and including effective date and 4 applicability provisions. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 1119YH (6) 90 ec/rn

H.F. 2 Section 1. Section 12.8, subsection 1, Code 2023, is amended 1 to read as follows: 2 1. The treasurer of state shall invest or deposit, subject 3 to chapters 12F , 12H , and 12J , and 12K and as provided by law, 4 any of the public funds not currently needed for operating 5 expenses and shall do so upon receipt of monthly notice from 6 the director of the department of administrative services of 7 the amount not so needed. In the event of loss on redemption 8 or sale of securities invested as prescribed by law, and if 9 the transaction is reported to the executive council, neither 10 the treasurer nor director of the department of administrative 11 services is personally liable but the loss shall be charged 12 against the funds which would have received the profits or 13 interest of the investment and there is appropriated from the 14 funds the amount so required. 15 Sec. 2. NEW SECTION . 12K.1 Legislative findings and intent. 16 The general assembly is deeply concerned and does not 17 support boycotts and related tactics that have become a tool 18 of economic warfare against numerous essential industries, 19 including fossil fuel production, agriculture, timber 20 production, and firearms, by corporations and public and 21 private institutional investors and proxy advisors in support 22 of environmental, social, and governance goals often at odds 23 with prudent financial management. Therefore, the general 24 assembly intends that public entities and public funds, when 25 financially prudent, should avoid doing business with companies 26 and investors that engage in such economic warfare, and 27 threaten harm to this state, its businesses, and citizens. 28 Sec. 3. NEW SECTION . 12K.2 Definitions. 29 As used in this chapter, unless the context otherwise 30 requires: 31 1. “Company” means any organization, association, 32 corporation, partnership, joint venture, limited partnership, 33 limited liability partnership, limited liability company, 34 or other entity or business association, including all 35 -1- LSB 1119YH (6) 90 ec/rn 1/ 10

H.F. 2 wholly owned subsidiaries, majority-owned subsidiaries, 1 parent companies, or affiliates of such entities or business 2 associations, that exists for profit-making purposes with at 3 least ten full-time employees. 4 2. “Economic boycott” means refusing to deal with, 5 terminating business activities with, or otherwise taking 6 any commercial action that is intended to penalize, inflict 7 economic harm on, limit commercial relations with, or change 8 or limit the activities of a protected company or a company 9 that does business with a protected company in order to further 10 environmental, social, or governance goals unrelated to the 11 financial condition of the protected company. 12 3. “Explanatory evidence” includes but is not limited to 13 advertising, statements, explanations, reports, letters to 14 clients, communications with portfolio companies, statements of 15 principles, or participation in, affiliation with, or status as 16 a signatory to, any coalition, initiative, joint statement of 17 principles, or agreement. 18 4. “Improper financial factors” means taking any action or 19 considering any factor, beyond what controlling federal or 20 state law requires, with a purpose to further environmental, 21 social, or governance goals based upon explanatory evidence 22 indicating such a purpose to accomplish any of the following: 23 a. Facilitating the elimination, reduction, offsetting, or 24 disclosing of greenhouse gas emissions. 25 b. Instituting or assessing corporate board criteria, or 26 employment composition, compensation, or disclosure criteria 27 that incorporates characteristics protected in this state under 28 chapter 216, the Iowa civil rights Act. 29 c. Divesting from, limiting investment in, or limiting the 30 activities or investments of any protected company. 31 5. “Investment advisor” means any person acting on behalf of 32 a public fund as an investment manager or proxy advisor. 33 6. “Protected company” means a company, without violating 34 controlling federal or state law, that meets any of the 35 -2- LSB 1119YH (6) 90 ec/rn 2/ 10

H.F. 2 following criteria: 1 a. Engages in the exploration, production, utilization, 2 transportation, sale, or manufacturing of fossil fuel-based 3 energy, timber, mining, or agriculture. 4 b. Engages in, facilitates, or supports the manufacture, 5 distribution, sale, import, export, or lawful use of firearms, 6 firearm parts, firearm accessories, or ammunition. 7 c. Does not meet, is not expected to meet, or does not 8 commit to meet environmental standards or disclosure criteria, 9 in particular to eliminate, reduce, offset, or disclose 10 greenhouse gas emissions. 11 d. Does not meet, is not expected to meet, or does not 12 commit to meet corporate board, or employment, composition, 13 compensation, or disclosure criteria that incorporates 14 characteristics protected in this state under chapter 216, the 15 Iowa civil rights Act. 16 e. Does not facilitate, is not expected to facilitate, or 17 does not commit to facilitate access to abortion, sex or gender 18 change, or transgender surgery. 19 7. “Public entity” means the state, political subdivisions 20 of the state, public school corporations, and all public 21 officers, boards, commissions, departments, agencies, and 22 authorities empowered by law to enter into public contracts for 23 the expenditure of public funds, including the state board of 24 regents and institutions under the control of the state board 25 of regents. 26 8. “Public fund” means the treasurer of state, the state 27 board of regents, the public safety peace officers’ retirement 28 system created in chapter 97A, the Iowa public employees’ 29 retirement system created in chapter 97B, the statewide fire 30 and police retirement system created in chapter 411, or the 31 judicial retirement system created in chapter 602. 32 Sec. 4. NEW SECTION . 12K.3 Public funds —— requirements. 33 1. A public fund shall not do any of the following: 34 a. Grant proxy voting authority to any person who is not 35 -3- LSB 1119YH (6) 90 ec/rn 3/ 10

H.F. 2 a part of the public fund or adopt a practice of following 1 the recommendations of a proxy advisor unless that person 2 or advisor has a practice of, and in writing commits to, 3 following guidelines to act solely in the financial interest of 4 participants and beneficiaries of the public fund and not based 5 upon improper financial factors. 6 b. Enter into an agreement with an investment advisor 7 unless the investment advisor has a practice of, and in writing 8 commits to, following guidelines when engaging with portfolio 9 companies and voting shares or proxies, and to act solely in 10 the financial interest of participants and beneficiaries of the 11 public fund and not based upon improper financial factors. 12 c. Enter into an agreement with an investment advisor 13 unless the investment advisor has a practice of, and in writing 14 commits to, making investment decisions based solely upon the 15 financial interest of participants and beneficiaries of the 16 public fund and not based upon improper financial factors. 17 2. All proxy votes on behalf of a public fund shall be 18 tabulated and reported annually to the public fund. For 19 each vote, the report shall contain a vote caption, the 20 vote on behalf of the public fund, the recommendation of 21 company management, and, if applicable, the proxy advisor’s 22 recommendation. The report shall be posted by the public fund 23 on a publicly available internet site of the public fund. 24 3. Subsection 1 does not apply if the public fund determines 25 that no economically practicable alternative is available. 26 Sec. 5. NEW SECTION . 12K.4 Public entities —— contract 27 requirements. 28 1. A public entity shall not enter into a contract of one 29 thousand dollars or more with a company that is engaged in an 30 economic boycott to acquire or dispose of services, supplies, 31 information technology, or construction. 32 2. A contract subject to the requirements of this section 33 shall contain a written verification from the company that it 34 does not engage in economic boycotts and will not engage in 35 -4- LSB 1119YH (6) 90 ec/rn 4/ 10

H.F. 2 economic boycotts during the term of the contract and shall 1 further provide for cancellation of the contract if the public 2 entity has reasonable cause to believe based on explanatory 3 evidence that the company is engaging in an economic boycott. 4 3. This section shall not apply if the public entity 5 determines that the requirements of this section would 6 otherwise be inconsistent with the public entity’s 7 constitutional or statutory duties or would prevent the public 8 entity from obtaining the supplies or services to be provided 9 in an economically practicable manner. 10 Sec. 6. NEW SECTION . 12K.5 Enforcement. 11 1. This chapter, or any contract subject to this chapter, 12 may be enforced by the attorney general. 13 2. If the attorney general has reasonable cause to believe 14 that a person has engaged in, is engaging in, or is about to 15 engage in a violation of this chapter, the attorney general may 16 do any of the following: 17 a. Require such person to file on such forms as the attorney 18 general prescribes a statement or report in writing, under 19 oath, as to all the facts and circumstances concerning the 20 violation, and such other data and information as the attorney 21 general may deem necessary. 22 b. Examine under oath any person in connection with the 23 violation. 24 c. Examine any record, book, document, account, or paper as 25 the attorney general may deem necessary. 26 d. Pursuant to a court order, impound any record, book, 27 document, account, paper, or sample or material relating to 28 such practice and retain the same in the possession of the 29 attorney general until the completion of all proceedings 30 undertaken under this chapter or in the courts. 31 Sec. 7. Section 35A.13, subsection 4, paragraph a, Code 32 2023, is amended to read as follows: 33 a. Notwithstanding subsection 5 , moneys in the fund, except 34 so much of the fund as may be necessary to be kept on hand 35 -5- LSB 1119YH (6) 90 ec/rn 5/ 10

H.F. 2 for the making of disbursements under this section , shall 1 be invested by the treasurer of state, in consultation with 2 the commission and the public retirement systems committee 3 established by section 97D.4 , in any investments authorized for 4 the Iowa public employees’ retirement system in section 97B.7A , 5 including common stock, and subject to the requirements of 6 chapters 12F , 12H , and 12J , and 12K, and the earnings therefrom 7 shall be credited to the fund. The treasurer of state may 8 execute contracts and agreements with investment advisors, 9 consultants, and investment management and benefit consultant 10 firms in the administration of investments of moneys in the 11 fund. 12 Sec. 8. Section 97A.7, subsection 1, Code 2023, is amended 13 to read as follows: 14 1. The board of trustees shall be the trustees of the 15 retirement fund created by this chapter as provided in section 16 97A.8 and shall have full power to invest and reinvest funds 17 subject to the terms, conditions, limitations, and restrictions 18 imposed by subsection 2 and chapters 12F , 12H , and 12J , and 19 12K and subject to like terms, conditions, limitations, and 20 restrictions said trustees shall have full power to hold, 21 purchase, sell, assign, transfer, or dispose of any of the 22 securities and investments of the retirement fund which have 23 been invested, as well as of the proceeds of said investments 24 and any moneys belonging to the retirement fund. The board 25 of trustees may authorize the treasurer of state to exercise 26 any of the duties of this section . When so authorized the 27 treasurer of state shall report any transactions to the board 28 of trustees at its next monthly meeting. 29 Sec. 9. Section 97B.4, subsection 5, Code 2023, is amended 30 to read as follows: 31 5. Investments. The system, through the chief investment 32 officer, shall invest, subject to chapters 12F , 12H , and 12J , 33 and 12K and in accordance with the investment policy and 34 goal statement established by the board, the portion of the 35 -6- LSB 1119YH (6) 90 ec/rn 6/ 10

H.F. 2 retirement fund which, in the judgment of the system, is not 1 needed for current payment of benefits under this chapter 2 subject to the requirements of section 97B.7A . 3 Sec. 10. Section 262.14, unnumbered paragraph 1, Code 2023, 4 is amended to read as follows: 5 The board may invest funds belonging to the institutions, 6 subject to chapters 12F , 12H , and 12J , and 12K and the 7 following regulations: 8 Sec. 11. Section 411.7, subsection 1, Code 2023, is amended 9 to read as follows: 10 1. The board of trustees is the trustee of the fire 11 and police retirement fund created in section 411.8 and 12 shall annually establish an investment policy to govern the 13 investment and reinvestment of the moneys in the fund, subject 14 to the terms, conditions, limitations, and restrictions 15 imposed by subsection 2 and chapters 12F , 12H , and 12J , and 16 12K . Subject to like terms, conditions, limitations, and 17 restrictions the system has full power to hold, purchase, sell, 18 assign, transfer, or dispose of any of the securities and 19 investments in which the fund has been invested, as well as of 20 the proceeds of the investments and any moneys belonging to the 21 fund. 22 Sec. 12. NEW SECTION . 524.906 Improper considerations. 23 A state bank shall not take into account improper financial 24 factors, as defined in section 12K.2, in determining whether 25 to make a loan. 26 Sec. 13. Section 533.315, Code 2023, is amended by adding 27 the following new subsection: 28 NEW SUBSECTION . 2A. Improper considerations. A state 29 credit union shall not take into account improper financial 30 factors, as defined in section 12K.2, in determining whether 31 to make a loan. 32 Sec. 14. Section 602.9111, subsection 1, Code 2023, is 33 amended to read as follows: 34 1. So much of the judicial retirement fund as may not be 35 -7- LSB 1119YH (6) 90 ec/rn 7/ 10

H.F. 2 necessary to be kept on hand for the making of disbursements 1 under this article shall be invested by the treasurer of 2 state in any investments authorized for the Iowa public 3 employees’ retirement system in section 97B.7A and subject to 4 the requirements of chapters 12F , 12H , and 12J , and 12K, and 5 the earnings therefrom shall be credited to the fund. The 6 treasurer of state may execute contracts and agreements with 7 investment advisors, consultants, and investment management and 8 benefit consultant firms in the administration of the judicial 9 retirement fund. 10 Sec. 15. EFFECTIVE DATE. This Act, being deemed of 11 immediate importance, takes effect upon enactment. 12 Sec. 16. APPLICABILITY. This Act applies to contracts and 13 loans entered into on or after the effective date of this Act. 14 EXPLANATION 15 The inclusion of this explanation does not constitute agreement with 16 the explanation’s substance by the members of the general assembly. 17 This bill relates to public contracts, public fund 18 investing, and lending practices with certain companies that 19 engage in economic boycotts based on environmental, social, or 20 governance criteria. 21 The bill creates new Code chapter 12K, which restricts 22 the treasurer of state, the state board of regents, the Iowa 23 public employees’ retirement system (IPERS), the public safety 24 peace officers’ retirement system, the statewide fire and 25 police retirement system, and the judicial retirement system, 26 defined as “public funds”, from entering into agreements with 27 investment managers or proxy advisors that take action based 28 upon improper financial factors relating to economic boycotts 29 based on environmental, social, or governance criteria and 30 not solely on the financial interest of participants and 31 beneficiaries of the public fund. The bill also prevents all 32 public entities, including the state and political subdivisions 33 of the state, from entering into a contract with a company 34 of $1,000 or more engaged in an economic boycott based on 35 -8- LSB 1119YH (6) 90 ec/rn 8/ 10

H.F. 2 environmental, social, or governance criteria. 1 The bill defines company, economic boycott, explanatory 2 evidence, improper financial factors, investment advisor, 3 protected company, public entity, and public fund. The bill 4 defines company as any profit-making business entity with at 5 least 10 full-time employees. A protected company is defined 6 to include companies engaged in fossil fuel-based energy, 7 timber, mining, agriculture, firearms, firearm parts, firearm 8 accessories, or ammunition activities; and companies that do 9 not or will not commit to meet, beyond what is required by 10 law, environmental standards or disclosure criteria, corporate 11 board and employment, composition, compensation, or disclosure 12 criteria that incorporate characteristics protected in this 13 state under the Iowa civil rights Act, or to facilitate 14 access to abortion, sex or gender change, or transgender 15 surgery. The bill defines economic boycott as taking adverse 16 action intended to penalize a protected company. Improper 17 financial considerations is defined to mean taking any action 18 or considering any factor, beyond what controlling federal or 19 state law requires, with a purpose to further environmental, 20 social, or governance goals related to those characteristics of 21 a protected company under the bill. 22 As to public funds, the bill prevents a public fund from 23 granting proxy voting authority to a person or entering into 24 an agreement with an investment advisor unless the person or 25 investment advisor commits in writing to act solely in the 26 financial interest of participants and beneficiaries of the 27 public fund and not based upon improper financial factors. The 28 bill also requires information on all proxy votes on behalf of 29 a public fund to be posted on a publicly available internet 30 site of the public fund. Finally, the bill provides that the 31 restrictions on a public fund do not apply if the public fund 32 determines that no economically practicable alternative is 33 available. 34 As to public entities, the bill prevents all public entities 35 -9- LSB 1119YH (6) 90 ec/rn 9/ 10

H.F. 2 from entering into a contract with a company of $1,000 or more 1 that is engaged in an economic boycott. The bill requires any 2 contract with a company subject to this provision to contain 3 a written verification from the company that it does not 4 engage in economic boycotts and will not engage in economic 5 boycotts during the term of the contract and shall further 6 provide for cancellation of the contract if the public entity 7 has reasonable cause to believe based on explanatory evidence 8 that the company is engaging in an economic boycott. The bill 9 provides that these requirements shall not apply if the public 10 entity determines that the requirements of this Code section 11 would otherwise be inconsistent with the public entity’s 12 constitutional or statutory duties or would prevent the public 13 entity from obtaining the supplies or services to be provided 14 in an economically practicable manner. 15 The bill provides that the attorney general shall enforce 16 the requirements of this new Code chapter. 17 Code chapters 524 and 533, governing state banks and credit 18 unions, are amended to restrict banks and credit unions from 19 utilizing improper financial factors, as defined by the bill, 20 in determining whether to make a loan. 21 The bill makes conforming changes to Code sections 12.8, 22 35A.13, 97A.7, 97B.4, 262.14, 411.7, and 602.9111. 23 The bill takes effect upon enactment and applies to 24 contracts and loans entered into on or after the effective date 25 of the bill. 26 -10- LSB 1119YH (6) 90 ec/rn 10/ 10