AN ACT Providing fiduciary standards of care, delegation of authority, authority for voting on shares, and proxy voting requirements, prohibiting consideration of non‑pecuniary factors, and authorizing the attorney General to enforce this act.

The General Assembly of North Carolina enacts:

SECTION 1.  Chapter 143 of the General Statutes is amended by adding a new Article to read:

Article 84.

North Carolina Public Finance Protection Act.

§ 143‑801.  Short title.

This Article shall be known and may be cited as the North Carolina Public Finance Protection Act.

§ 143‑802.  Definitions.

The following definitions apply in the Article:

(1)        Fiduciary. – A person who, with respect to a pension benefit plan, does any of the following:

a.         Exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets.

b.         Renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of such plan, or has any authority or responsibility to do so.

c.         Has any discretionary authority or discretionary responsibility in the administration of such plan, including making recommendations or voting a plan's shares or proxies.

(2)        Material. – When used to qualify a risk or return, means a risk or return regarding which there is a substantial likelihood that a reasonable investor would attach importance when either (i) evaluating the potential financial return and financial risks of an existing or prospective investment or (ii) exercising, or declining to exercise, any rights appurtenant to securities, but does not include any of the following:

a.         Furthering non‑pecuniary, environmental, social, political, ideological, or other goals or objectives.

b.         Any portion of a risk or return that primarily relates to events that involve a high degree of uncertainty regarding what may or may not occur in the distant future and are systemic, general, or not investment‑specific in nature.

(3)        Non‑pecuniary. – Any action taken or factor considered by a fiduciary with any purpose to further environmental, social, or political goals. A fiduciary purpose may be reasonably determined by evidence, including, but not limited to, a fiduciary's statements indicating its purpose in selecting investments, engaging with portfolio companies, or voting shares or proxies, or any such statements by any coalition, initiative, or organization that the fiduciary has joined, participated in, or become a signatory to in its capacity as a fiduciary.

(4)        Pecuniary factor. – A factor that has a material effect on the financial risk or financial return of an investment based on appropriate investment horizons consistent with the plan's investment objectives and the funding policy. The term excludes non‑pecuniary factors.

(5)        Pension benefit plan or plan. – Any plan, fund, or program which was heretofore or is hereafter established, maintained, or offered by the State of North Carolina or any subdivision, county, municipality, agency, or instrumentality thereof, or any school, college, university, administration, authority, or other enterprise operated by the State of North Carolina, to the extent that by its terms or as a result of surrounding circumstances either:

a.         Provides retirement income or other retirement benefits to employees or former employees.

b.         Results in a deferral of income by such employees for a period extending to the termination of covered employment or beyond.

§ 143‑803.  Fiduciary duties and responsibilities.

(a)        A fiduciary shall discharge duties with respect to a plan solely in the pecuniary interest of the participants and beneficiaries:

(1)        For the exclusive purpose of providing pecuniary benefits to participants and their beneficiaries and defraying reasonable expenses of administering the plan.

(2)        With the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.

(3)        By diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so.

(4)        In accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this act.

(b)        A fiduciary's evaluation of an investment, or evaluation or exercise of any right appurtenant to an investment, must take into account only pecuniary factors. Plan fiduciaries are not permitted to promote non‑pecuniary benefits or any other non‑pecuniary goals. Environmental, social, corporate governance, or other similarly oriented considerations are pecuniary factors only if they present economic risks or opportunities that qualified investment professionals would treat as material economic considerations under generally accepted investment theories. The weight given to those factors should solely reflect a prudent assessment of their impact on risk and return. Fiduciaries considering environmental, social, corporate governance, or other similarly oriented factors as pecuniary factors are also required to examine the level of diversification, degree of liquidity, and the potential risk‑return in comparison with other available alternative investments that would play a similar role in their plans' portfolios. Any pecuniary consideration of environmental, social, or governance factors must necessarily include evaluating whether greater returns can be achieved through investments that rank poorly on such factors.

(c)        All shares held directly or indirectly by or on behalf of a pension benefit plan or the beneficiaries thereof shall be voted solely in the pecuniary interest of plan participants. Voting to further non‑pecuniary, environmental, social, political, ideological, or other benefits or goals is prohibited.

(d)       Unless no economically practicable alternative is available, a fiduciary may not adopt a practice of following the recommendations of a proxy advisory firm or other service provider unless such firm or service provider has a practice of, and in writing commits to, following proxy voting guidelines that are consistent with the fiduciary's obligation to act based only on pecuniary factors.

(e)        Unless no economically practicable alternative is available, plan assets shall not be entrusted to a fiduciary, unless that fiduciary has a practice of, and in writing commits to, following guidelines, when engaging with portfolio companies and voting shares or proxies, that match the plan's obligation to act based only on pecuniary factors.

(f)        Authority to vote such shares should be in the hands of a State official politically accountable to the people of the State of North Carolina. As such, all current proxy voting authority with respect to any and all shares held directly or indirectly by or on behalf of a pension benefit plan or the plan participants is hereby revoked. With respect to the pension benefit plans, all such voting authority shall reside with the respective Board of Trustees, except that the Board of Trustees may delegate such authority to a person who has a practice of, and in writing commits to, following guidelines that match the plan's obligation to act based only on pecuniary factors. With respect to all statewide or local governing authority, all such voting authority shall reside with the respective governing officer, except that the governing officer may delegate such authority to a person who has a practice of, and in writing commits to, following guidelines that match the governing officer's obligation to act based only on pecuniary factors.

(g)        All proxy votes shall be tabulated and reported annually to the respective Board of Trustees or governing officer. For each vote, the report shall contain a vote caption, the plan's vote, the recommendation of company management, and, if applicable, the proxy advisor's recommendation. These reports shall be posted on a publicly available webpage.

§ 143‑804.  Enforcement.

(a)        This act may be enforced by the Attorney General.

(b)        If the Attorney General has reasonable cause to believe that a person has engaged in, is engaging in, or is about to engage in a violation of this Article, he or she may take any of the following actions:

(1)        Require such person to file on such forms as he or she prescribes a statement or report in writing, under oath, as to all the facts and circumstances concerning the violation, and such other data and information as he or she may deem necessary.

(2)        Examine under oath any person in connection with the violation.

(3)        Examine any record, book, document, account, or paper as he or she may deem necessary.

(4)        Pursuant to an order of the Supreme Court of North Carolina, impound any record, book, document, account, paper, or sample or material relating to such practice and retain the same in his or her possession until the completion of all proceedings undertaken under this act or in the courts.

SECTION 2.  If any section or provision of this act is declared unconstitutional or invalid by the courts, it does not affect the validity of this act as a whole or any part other than the part declared to be unconstitutional or invalid.

SECTION 3.  This act becomes effective October 1, 2023.