Florida government proposes anti-ESG rule for state pension funds

Florida Governor Ron DeSantis (pictured) has become the latest Republican lawmaker to crack down on ESG investing at state pension funds.

DeSantis last week proposed legislation for the 2023 legislative session that would amend Florida’s Deceptive and Unfair Trade Practices Act to prohibit major banks, credit card companies and money issuers from not not invest in certain public companies based on their ESG ratings. The proposed law would also prohibit state board of directors (SBA) fund managers from implementing ESG analysis in their management of state pension fund portfolios.

The Florida SBA oversees approximately $250 billion in total assets and manages Florida Retirement System funds and approximately 25 other funds. If the law passes, these managers would be required to “consider maximizing return on investment only on behalf of Florida retirees.”

A press release from DeSantis’ office includes comments about ESG “threatening the vitality of the American economy” and its supporters dictating policy to “advance a woke ideological agenda.”

“From Wall Street banks to huge asset managers and big tech companies, we’ve seen the corporate elite use their economic power to impose policies on the country that they couldn’t achieve at the ballot box,” DeSantis said in a statement. “Through the actions I announced today, we are protecting Floridians from woke capital and asserting the authority of our constitutional system over corporate ideological power.”

DeSantis’ proposal is the latest attempt by a Republican lawmaker to stifle institutional ESG investing in their state. Earlier this year, Texas politicians compiled a blacklist of mutual funds, ETFs, SMAs and fund managers who boycott fossil fuels in an effort to remove them from state pension plans. This law is based on white-label legislation drafted by the American Legislative Exchange Council (ALEC), a right-wing lobby and think tank that is at least partly funded by the oil and gas industry.

While the law may not affect as many shifts in Texas pension fund portfolios, it does indicate a broader pushback against ESG-focused investing this year, especially in historically red states where the oil and gas industry is very present. Legislators in Oklahoma and Indiana, for example, have introduced bills similar to the one provided by ALEC and passed by Texas.

In coal-friendly West Virginia, Treasurer Riley Moore withdrew his state’s pension funds from Blackrock when company executive Larry Fink announced plans to move away from fossil fuels. Moore also created a blacklist of financial companies that had boycotted fossil fuels, including BlackRock, Goldman Sachs, Wells Fargo, JP Morgan and Morgan Stanley. When the blacklist went into effect last month, existing state banking contracts with the companies were canceled and the companies were barred from eligibility for future state contracts. Speak New York Times, the state pension system is currently unaffected. Moore has cobbled together a coalition of 15 states that plan to do the same, representing hundreds of billions of dollars in flows.

Some advisors seem to be reconsidering ESG with raised eyebrows. A study by the Financial Planning Association found that an increased percentage of advisors plan to reduce their use or recommendation of ESG analysis over the next year.

Of course, investing style came under pressure during the market downturn as tech stock valuations plunged and energy stocks rallied. This summer, for the first time in three years, ESG ETFs saw monthly outflows, with investors withdrawing $2 billion from these funds.