Florida House puts ‘ESG’ investments in the crosshairs
In a priority of House Speaker Paul Renner and other Republican leaders, the House began moving forward with a proposal that would prevent considering “environmental, social and governance” standards in investing government money.
The House Commerce Committee voted 16-5 to approve a bill (HB 3) that would expand on a directive issued last year by Gov. Ron DeSantis and members of the state Cabinet. That directive required investment decisions for what is known as the Florida Retirement System Defined Benefit Plan to prioritize the highest returns without consideration of environmental, social and governance standards, or ESG.
The bill would expand that to all funds invested by state and local governments.
Bill sponsor Bob Rommel, R-Naples, said the intent is to “send a message” that Florida won’t engage with corporations using “progressive ideology” or “exercising corporate activism when issuing bonds.”
“There are issues out there when the largest financial institutions in the world and government agencies collude and outright decide they’re going to discriminate against a practice, an industry, they just think is morally wrong,” Rommel said. “And if they want to do that, I think we as the state of Florida have an obligation to protect our citizens, protect our businesses.”
The bill would require that state and local-government investment decisions be made “solely on pecuniary factors” and would prevent “sacrificing investment return or undertaking additional investment risk to promote any non-pecuniary factor.” Rommel acknowledged the bill wouldn’t prevent investments with companies that use ESG ratings “as long as there’s a predictable return.”
Republican leaders in Florida and other states have targeted ESG for taking into account issues such as climate change, racial inequality and supply-chain labor standards.
But Rep. Dotie Joseph, R-North Miami, said the state could be viewed as being involved in ideological discrimination by “badgering the industries that are responding to market forces.”
“It's going to cause financial havoc because somebody wants to score a political point with this bill,” Joseph said.
Dwight Mattingly, a pension trustee with the Florida AFL-CIO, said aspects of the bill seem to be an “overreach.”
“ESG is one of the hottest topics in investment. And the reason it is, is because it deals with what is being required in the global world regarding how manufacturing is done, how automobiles are created, how lumber is harvested, how farming is done,” Mattingly said. “And as a result of that, every pension board meeting that we have, our investment consultants and our investment managers talk to us about those issues. If I'm understanding this correctly, it’s going to limit that discussion.”
The bill also would bar issuance of ESG bonds and would place restrictions on banks.
Anthony DiMarco, a lobbyist for the Florida Bankers Association, said the proposal may drive up compliance costs for banks, which could be a bigger burden for state-chartered community banks.
DiMarco said banks also must remain compliant with Federal Deposit Insurance Corporation rules and are facing changes in federal law that could conflict with Florida’s proposed changes.
During a speech Tuesday to help open the annual legislative session, Renner, R-Palm Coast, argued that ESG consideration doesn’t follow the will of the people.
“The financial elite who are charged with investing on our behalf are using our investments for their own ideological agenda and without our consent,” Renner said. “This session we will stand up for state workers and protect their retirement from political interference. Florida will insist that pension funds invest for the best rate of return possible; and we will also prohibit any ESG interference in public procurement.”
Rommel contended that funds using ESG practices had a 50 percent lower return over the past five years.
In October, state Chief Financial Officer Jimmy Patronis pulled about $2 billion in state treasury investments managed by BlackRock over the use of ESG ratings.
Larry Fink, CEO of BlackRock, a massive asset-management firm, in a letter last year to corporate executives said that companies using the standards are "performing better than their peers."