HB2637 - 552R - Senate Fact Sheet

Purpose

Prohibits certain financial institutions from discriminating against any person based on a political affiliation or other social credit, environmental, social, governance or similar values-based or impact criteria. Requires an investment manager to attest that the investment manager does not hold any environmental, social or governance-related investments and prescribes requirements and prohibitions relating to the State Treasurer's investments and investment managers.

Background

A financial institution is a bank, trust company, savings and loan association, credit union, consumer lender, international banking facility and financial institution holding company under the jurisdiction of the Department of Insurance and Financial Institutions (A.R.S. § 6-101).

The State Treasurer is responsible for the safekeeping of all securities for which the State Treasurer is the lawful custodian. Securities may be deposited for safekeeping with any bank eligible to be the state servicing bank or any trust company or trust department of any bank qualified to do business in Arizona. The State Treasurer must invest and reinvest trust and treasury monies in outlined obligations, bonds and other permitted investments.

The State Treasurer may enter into an agreement with investment managers to invest treasury monies. An agreement must require the investment manager to regularly account for, itemize and inventory all securities under management consistent with statutory requirements and report the findings to the State Treasurer at least monthly or on demand (A.R.S. Title 35, Chapter 2, Article 2). The State Board of Investment reviews investments of state treasury monies, serves as trustees of permanent funds and provides management of the assets of the funds consistent with outlined conditions (Ariz. Const. art. 10 § 7).

There is no anticipated fiscal impact to the state General Fund associated with this legislation.

Provisions

Financial Institutions

1. Prohibits a financial institution doing business in Arizona, either directly or through a contractor, from discriminating against any person based on either:

a) a political affiliation; or

b) other social credit, environmental, social, governance or similar values-based or impact criteria.

2. Allows a financial institution, notwithstanding any other law, to offer investments, products or services to a potential customer or investor that include subjective standards, if the standards are fully disclosed and explained before entering into a contract for the investments, products or services.

3. States that the Legislature declares that:

a) the practice of discrimination against persons or entities in Arizona by using their social credit or environmental, social justice and governmental score is a matter of statewide concern; and

b) discrimination based on such scores not only threatens the rights and privileges of Arizona's inhabitants but menaces the institutions and foundation of a free democratic state and threatens the peace, order, health, safety and general welfare of the state and its habitants.

4. Specifies that the prohibition, permissive authority and declaration do not interfere with a financial institution's ability to discontinue or refuse to conduct business with a person when the action is necessary for the physical safety of the financial institution's employees.

State Treasurer

5. Requires any investment manager to attest in writing on a State Treasurer-prescribed form that the investment manager does not hold any environmental, social or governance-related investments.

6. Requires the State Treasurer to post a current list of investment managers of state investments and certify that the investment managers do not hold investments in environmental, social or governance-related products.

7. Requires the State Treasurer to post a current list of investment managers and state investments by name on their publicly accessible website and to update any changes within a reasonable time period.

8. Requires all state investments to be made in the sole interest of the beneficiary taxpayer.

9. Requires the State Treasurer's evaluation of an investment to be based on pecuniary factors.

10. Prohibits the State Treasurer from taking unnecessary investments risks or promoting nonpecuniary benefits or other nonpecuniary social goals.

11. Prohibits a person or entity, unless employed and specifically authorized by the State Treasurer, from voting the shares or other indicia of ownership of any company, partnership, limited liability company or other entity purchased, directly or indirectly, with funds from a plan or group of plans.

Miscellaneous

12. Becomes effective on the general effective date.