- Florida Gov. Ron DeSantis signed House Bill 3 into law on Tuesday, which prohibits the use of ESG standards in investment decisions.
- The bill also prohibits banking institutions from using “social credit scores” to make lending decisions.
- President Joe Biden vetoed a federal bill last month that would have prevented fund managers from using ESG standards.
- Last year, state officials divested $2 billion worth of assets managed by BlackRock in response to the asset manager’s support of ESG investing strategies.
Gov. Ron DeSantis signed a piece of legislation into law on Tuesday that prevents fiduciary managers from using the consideration of ideological factors in state investment decisions.
The measure, House Bill 3 (HB3), prohibits consideration of “environmental, social and governance” (ESG) standards in investing government money. The bill also prohibits banking institutions from using “social credit scores” in making financial lending decisions.
The bill’s signing expands on a directive issued last year by DeSantis and state Cabinet members requiring investment decisions in the Florida Retirement System Defined Benefit Plan to prioritize the highest returns without consideration of ESG standards.
The move comes a month after President Joe Biden vetoed a federal bill that would have prevented fund managers from utilizing ESG standards.
“We want to have an economy that’s based on value, that’s based on the best interest of beneficiaries if you’re talking about a pension fund, and we don’t want to have an economy in which these businesses are taking all these positions on political issues or using shareholder assets to advance an ideological agenda,” said DeSantis on Tuesday.
Ostensibly, the legislation does not stop fund managers from investing in companies that use such standards but prevents them from being able to base investment decisions on issues such as climate change and social diversity.
ESG investing is the practice of investing in firms or funds that seek market-rate financial returns while also targeting beneficial social or environmental impact. The ratings can involve a wide range of issues in investments, such as companies’ climate change vulnerabilities, carbon emissions, racial inequality, and supply-chain labor standards, among others
“On the surface, we have this great egalitarian movement of the middle-class investing in 401ks or retirement assets, which means everybody … has a little piece of America’s greatest corporations,” said House Speaker Paul Renner, who took on HB 3 as a legislative priority. “But that’s not what’s happening because the people at the top are not voting with your beliefs, but their own.”
Critics, however, contend that enacting the bill into law will cost the state money and hinder investment decision-making.
During committee deliberations, Sen. Tina Polsky claimed that studies have shown the change could cost the state $97 million to $300 million in additional interest charges on municipal bonds, while Sen. Lori Berman questioned why the state would want to cut itself off from companies like BlackRock, which she said has made “tremendous returns” through investments using ESG standards.
Meanwhile, Sen. Jason Pizzo referred to the bill as “incredibly laughable,” stating that it would lead to a “really bad financial condition.”
Late last year, state officials divested $2 billion worth of assets under management by BlackRock in response to the asset manager’s backing of ESG investing strategies.
Chief Financial Officer Jimmy Patronis announced that his department froze approximately $1.43 billion worth of long-term securities and removed BlackRock as the manager of approximately $600 million worth of short-term overnight investments.
BlackRock managed $1.43 billion of Florida’s Long Duration Portfolio, which manages investments such as corporate obligations, asset-backed securities, and municipal bonds.
Unlike the externally managed portfolios which are managed by 12 different asset managers, BlackRock exclusively managed the Treasury’s $600 million Short Term Investment Fund (STIF), which is a cash sweep vehicle it uses to assist long-duration, intermediate duration, and short-duration managers in managing their cash on a daily basis.