Florida adopts anti-ESG rule for state’s $186bn pension plan [Private Equity Insights]

Florida Gov. Ron DeSantis’ administration on Aug. 23 approved a resolution to bar the state’s $186bn pension fund from considering environmental, social or governance factors when making investment decisions.

The resolution came amid red-state criticism of the Biden administration’s climate accountability rules, which require companies to track and report emissions.

The term ESG refers to taking the ramifications of businesses’ practices into account when making investment or corporate decisions. The SEC is tracking public companies’ ESG targets so that it can hold companies accountable to their promises to curtail emissions.

DeSantis, who is reportedly considering a 2024 presidential run, told a State Board of Administration meeting that ESG policies “are dead on arrival in the state of Florida.”

The state board of administration’s three Republican governing trustees, of which DeSantis is one, voted to approve the new rule. DeSantis said he will work with the state legislature to codify the new rule in law and that he expects other states to follow Florida’s lead.

The Florida governor ordered the state’s pension fund to invest with the goal of “maximizing financial return over and above other considerations.”

Florida’s pension fund ranks 15th for returns

Adam Hattersley, a Democrat and former lawmaker who is running for Florida’s chief financial officer, which would make him a member of the board overseeing the state’s pension fund, said ESG has never factored into decisions the board makes.

“They’re creating a problem to get their base riled up and make it look like they’re solving something,” Hattersley said in an interview. “If they’re supposed to only consider the fiduciary benefits when investing, why then did they not divest from our Russian investments with the pension plan? When Russia invaded Ukraine, 25 states divested and Democrats asked for it, but they refused and we lost nearly $300 million.”

Florida’s 2.6 million-member public retirement system was the nation’s ninth largest in 2021 for private equity investments, but ranked behind 14 other systems for returns, according to the American Investment Council.

The state’s defined benefit pension plan has lost $20 billion since the beginning of the year, said Lamar Taylor, the fund’s interim chief investment officer and executive director, who introduced the rule at the meeting. The drop mirrors the declines across the nation’s approximately 200 state and local pension funds, following stock market losses and inflationary pressures, the Boston College Center for Retirement Research reported this month.

Most ESG-focused funds in an S&P Global Market Intelligence survey of select funds have been lagging the overall S&P 500 index since early 2021 — a trend analysts said reflects geopolitical events as well as the funds’ heavy reliance on tech stocks.

The S in ESG

DeSantis’ resolution on ESG follows moves to influence corporate and school district policies on LGBTQ+ rights and other social issues. This summer, the Walt Disney Co. lost its special tax district at its theme park in Orlando after the company’s CEO spoke out against a Florida law banning schools from discussing gender and sexual orientation with young students.

DeSantis’ campaign against progressive policies has extended across the economy. The governor was a champion for the new Stop WOKE Act that, among other things, prohibits businesses from mandating diversity training. The law was partially blocked by a federal court earlier this month.

Source: S&P Global