H4127

	SECTION 1. Chapter 29 of the General Laws is hereby amended by inserting, after section 2JJJJJJ, the following section:-
	Section 2KKKKKK. (a) For the purposes of section, the following words shall, unless the context clearly requires otherwise, have the following meanings:
	“Board”, the pension reserves investment management board.
	“Climate-related financial risks”, investment risks arising from climate change, including but not limited to: (i) transition risks, such as regulatory changes, carbon pricing, market shifts and stranded assets; (ii) physical risks, including extreme weather events and infrastructure vulnerabilities; and (iii) litigation risks, including legal liability for investments misaligned with climate-related fiduciary standards.
	“Commission”, the public employee retirement administration commission established under section 49 of chapter 7.
	“Fiduciary stewardship”, the obligation of pension fiduciaries to incorporate long-term risk mitigation into investment strategies, including climate-related financial risks, to protect the retirement security of current and future beneficiaries.
	“High-risk assets”, investments in industries or companies with significant exposure to climate-related financial risks, including fossil fuels and carbon-intensive infrastructure that may become stranded assets.
	“Safe harbor protections”, legal provisions ensuring that fiduciaries acting in good faith shall not be held personally liable for adopting investment strategies that align with long-term risk mitigation and climate resilience.
	“Sustainable investments”, investments that align with net zero goals, promote economic resilience and prioritize sectors such as renewable energy, energy efficiency, sustainable infrastructure and nature-based solutions.
	(b) There shall be established and set up on the books of the commonwealth a separate fund known as the Pension Innovation Fund, hereinafter referred to as the fund. The fund shall: (i) provide economic and workforce support for communities and workers impacted by energy transition; (ii) enable fiduciaries to incorporate climate-aware investment strategies through financial assistance, technical expertise and risk assessment tools; (iii) facilitate the transition of public pension funds toward climate-aligned, risk-resilient investment strategies that promote long-term financial security, intergenerational equity and systemic resilience; (iv) support and provide a structured, legally protected pathway for pension funds to divest from high-risk assets and allocated toward sustainable investments; (v) establish fiduciary safe harbor protections to empower pension fund managers to proactively manage climate risks without fear of undue legal liability; (vi) support economic and workforce transition initiatives to protect workers and communities affected by industry shifts; and (vii) enhance transparency and accountability through standardized reporting and public oversight mechanisms. The fund shall be administered by the state treasurer.
	(c) The fund shall be credited with: (i) revenue from appropriations or other money authorized by the general court and specifically designated to be credited to the fund; (ii) interest earned on money in the fund; (iii) 1 per cent of annual returns generated by the board; (iv) 0.5 per cent of the board’s actuarial risk adjustment premium; (v) green bonds issued by the commonwealth; and (vi) contributions from private sector entities, including public-private partnerships, foundations and other organizations. Amounts credited to the fund shall not be subject to further appropriation and any money remaining in the fund at the end of a fiscal year shall not revert to the General Fund.
	(d) The fund’s annual financial targets shall align with: (i) the scale of transition initiatives required to meet net zero and fiduciary risk mitigation goals; and (ii) a structured funding approach, beginning with: (A) 1.5 per cent of funds for foundational programs and pilot initiatives in year 1; and (B) contributions capped at 1 per cent of the board ’s annual returns, subject to review and adjustment based on assessed needs in subsequent years.
	(e) The treasurer shall make expenditures from the fund including, but not limited to, the following purposes: (i) providing technical and financial assistance to public pension funds for: (A) divesting from high-risk assets while managing transition risks; (B) researching and implementing sustainable investment strategies; (C) developing portfolio realignment models and risk assessment tools; (ii) financing workforce retraining and upskilling programs for employees impacted by industry shifts; (iii) supporting regional economic development initiatives that promote job creation in renewable energy and sustainable industries that offer fair wages and benefit and that commit to union neutrality; (vi) providing financial stabilization resources for communities affected by economic transitions; (vii) establishing pilot programs for fiduciary innovation, including impact investments, climate-aligned funds, and other risk-mitigating strategies; (viii) providing funding for research and independent risk modeling to assist pension fiduciaries in assessing long-term systemic risks; (ix) developing investment frameworks that incorporate fiduciary principles alongside climate-related financial risk mitigation; (x) requiring standardized reporting on expenditures, investment reallocations and climate-aligned fiduciary strategies; (xi) ensuring public oversight and stakeholder participation through annual reports, advisory boards and public engagement mechanisms; and (xii) limiting administrative expenses to 5 per cent of annual fund revenue to ensure efficient use of resources.
	(f) Fiduciaries managing public pension funds shall: (i) explore and adopt investment strategies to: (A) address systemic risks, including climate-related financial risks; and (B) balance short-term returns with long-term financial and systemic stability; (ii) document efforts to integrate sustainable investments and mitigate taxpayer risk; (iii) explore new industries and investment opportunities, including new or alternative investment practices suited to the character and aims of public pensions, which include, but are not limited to, project finance, asset management and trading, debt and equity; and (iv) show fiduciary stewardship to align their investments with strategies that protect long-term value, ensure intergenerational equity and safeguard plan participants' retirement security.
	(g) Fiduciaries managing public pension funds shall not engage in any course of action, including, but are not limited to: (i) investments that they know or should have known has a likelihood of contributing to direct or indirect injury to pension beneficiaries; and (ii) investments in enterprises known to contribute to coastal and inland flooding, heatwaves, drought, price volatility of food, energy and necessities, fire hazards and other extreme weather events. Any participation in such risk-intensification activities that fiduciaries knew or should have known would expose beneficiaries to these injuries, presently or in the future, wherever it is foreseeable that beneficiaries may live or travel, constitutes a breach of fiduciary duty.
	(h) Fiduciaries managing public pension who act in good faith, with reasonable care, shall not be held personally liable for losses resulting from investment strategies aligned with reducing climate-related risks. Fiduciaries shall be presumed to have acted in good faith if they: (i) rely on credible, diversified, independent analysis or advice from qualified professionals; and (ii) follow established policies and procedures for evaluating and mitigating risks associated with innovative strategies.
	(i) Fiduciaries managing public pension shall be indemnified by the commonwealth against legal claims or damages arising from: (i) their participation in the adoption, implementation or oversight of investment strategies under this section; and (ii) actions taken in compliance with the provisions of this section.
	(j) The commission, in consultation with the state treasurer, shall oversee that the fund and fiduciary investment strategies are in compliance with this section. The commission shall conduct annual compliance reviews of the board’s investment practices evaluating: (i) progress on divestment from high-risk assets; (ii) effectiveness of capital reallocation into sustainable industries; (iii) implementation of fiduciary innovation strategies; (iv) outcomes of workforce and economic transition initiatives.
	(k) The commission, in consultation with the state treasurer, shall prepare an annual report that shall include: (i) fund expenditures and allocations; (ii) performance benchmarks for sustainable investments; (iii) status of pension portfolio realignment; (iv) measurable outcomes for workforce transition programs; and (v) progress toward net zero alignment and intergenerational equity goals.
	(l) The commission shall annually, not later than December 31, report on the activity of the fund to the: (i) house committee on global warming and climate change; (ii) chairs of the joint committee on revenue; (iii) chairs of the house and senate committees on ways and means; and (iv) clerks of the house of representatives and senate.
	SECTION 2. This act shall take effect 180 days after passage.