AN ACT amending the Prudent Management of Institutional Funds Act to protect the charitable purpose of institutional funds managed and invested by state universities and other government institutions holding funds for charitable purposes.

(a) Section 2 of the Prudent Management of Institutional Funds Act is amended by renumbering subsections (6), (7), and (8) as subsections (7), (8), and (9), respectively, and adding subsections (6) and (10) as follows:

“(6) “Materially negative financial impact” means a materially negative financial impact on the institutional fund’s total net investment performance (considering all financial returns received by the fund and all costs paid by the fund). The term excludes the government institution’s administrative costs not paid by the fund.”

“(10) “Service provider” means any person, including affiliates, offering or providing financial services to the institutional fund, including, but not limited to:

(A) an investment manager, investment company, securities broker or dealer, investment advisor, or subadvisor; or

(B) a proxy advisor, including any person who for compensation provides corporate governance ratings, proxy research and analyses, proxy voting advice, or other similar services, for the purpose of advising a shareholder on how to vote on measures under consideration by shareholders, or proxy voting on behalf of a shareholder.

(b) Section 3 of the Prudent Management of Institutional Funds Act is amended by adding subsections (f), (g), and (h) as follows:

“(f) Notwithstanding any other provision in this act, except for subsection (h), in managing and investing an institutional fund, a government institution described in paragraph 2(4)(B), including but not limited to [insert state universities definition], shall not do either of the following:

1. consider any of the goals listed in subparagraph (2)(A) through (E) of this subsection with regard to a possible investment by the institutional fund, or selection of a service provider, or the voting of shares by the institutional fund, except to the extent required to comply with paragraph (2) of this subsection; or
2. select any service provider that has a purpose or ambition for its customers, investment portfolio, or any portfolio company, or has joined or participates in any initiative or organization that has a purpose or ambition for its signatories’ or members’ customers, investment portfolios, or portfolio companies, to be aligned with any of the following goals beyond what is required by controlling law:

A. directly or indirectly eliminating, reducing, offsetting, or disclosing reduction targets for greenhouse gas emissions, including by restricting the exploration, production, utilization, transportation, sale, or manufacturing of timber, mining, agriculture, or fossil-fuel-based energy;

B. instituting corporate board or employment composition targets or criteria that incorporate characteristics protected in this state under [state civil rights statute];

C. providing access to or facilitating abortion or gender-reassignment or sex-reassignment medications or procedures;

D. restricting public access to firearms, ammunition, or component parts and accessories, including by restricting the distribution, sale, manufacturing, import, marketing or advertising of firearms, ammunition, or component parts and accessories;

E. reducing the amount of business conducted with any entity, for the purpose of advancing any of the foregoing goals; or

F. advancing the purposes of any international agreement related to any of the foregoing goals.

(g) Paragraph (f)(2) of this section shall not apply in the event that the government institution determines that paragraph (f)(2) of this section would require the selection of a service provider that would have a materially negative financial impact on the fund, provided that the government institution complies with the following requirements:

1. contracts with the service provider that most closely meet the requirements of paragraph (f)(2) of this section and would not have a materially negative financial impact on the fund;
2. documents its determination, along with evidence supporting its determination, including a description of the services of at least three alternative service providers consulted that includes a description of fees, historical investment performance, and compliance with paragraph (f)(2) of this section;
3. includes such documentation and evidence in its minutes or other publicly available medium;
4. publicly posts notices seeking a service provider that would comply with paragraph (f)(2) of this section at the following times: (i) no later than 60 days after the selection of a service provider that does not meet the requirements of paragraph (f)(2) of this section (ii); no later than 60 days before the beginning of any following procurement period under which that service provider could be replaced; and (iii) as part of any following procurement announcement under which that service provider could be replaced; and
5. limits the contract duration to no more than one year and re-evaluates its determination at least annually pursuant to paragraphs (1) through (4) of this subdivision.

(h) The requirements of subsection (f) of this section shall not apply to the investment and management of specific gifts where the intent of a donor was contrary to subsection (f) and was expressed in the gift instrument prior to January 1, 2024.”