Florida’s DeSantis Signs Aggressive Anti-ESG Legislation
Florida Governor Ron DeSantis signed a bill into law Tuesday that targets the growth of environmental, social and governance (ESG) investing in the state. The anti-ESG legislation prevents state officials from investing public money in the promotion of ESG goals, prioritizes financial returns for state funds and pensions, eliminates ESG considerations in state contracts and prohibits the issuance of green bonds.
“We want them to act as fiduciaries. We do not want them engaged on these ideological joyrides,” DeSantis said, as Reuters reported.
The new law goes further than anti-ESG bills in other states, commented analysts, who pondered how it would be put into practice.
Florida’s pension fund agency managers, for example, would have to use disclaimers when working with portfolio companies expressing that their views did not mirror those of Floridians.
The law probably won’t have much practical effect, financial experts told The Hill.
“It prohibits ‘banks that engage in corporate activism,’” Shivaram Rajgopal, a professor at Columbia Business School, told The Hill. “But what does that even mean? Legally, that’s going to be difficult to define. Should banks not get involved if a manager is simply a bad manager, and wastes shareholder capital?”
According to Joshua Lichtenstein of the law firm Ropes & Gray, regulatory action could be taken against fund managers that don’t use a sufficient number of disclaimers, reported Reuters.
“It’s an oddity to say you’re only talking on behalf of some of your clients,” Lichtenstein added.
The Florida regulation also makes ESG bonds — a common way of obtaining lower debt prices for meeting goals related to greenhouse gas emissions or gender diversity or funding renewable energy projects — illegal.
“This legislation does not change the fact that investors find factors related to climate risks or corporate governance failures material to the value of their investments,” said Greg Hershman, head of U.S. policy at the Principles for Responsible Investment, which represents organizations and firms that manage more than $121 trillion in assets, as Bloomberg Law reported. “It just undermines their freedom to consider those factors.”
Some analysts and lawyers have said the legislation could prevent municipalities from accessing significant ESG-mandated revenue, reported Reuters.
Thomas Torgerson, co-head of global sovereign ratings at DBRS Morningstar, said interpreting the law’s terms is a concern.
“If we as a rating agency cannot assess environmental, social or governance risk that creates a problem for us. There are climate and weather risks that are highly relevant, especially in a state like Florida, and would be captured in our assessment of credit risk,” Torgerson said, as Reuters reported.
Brandon Owens, vice president of sustainability at consulting firm Insight Sourcing Group, told The Hill that the main premise of the bill that ESG investing hinders profits is false.
Sustainability is less frequently being treated as separate from profit by the financial industry, Owens said, and is, rather, becoming an important part of gains.
If environmental risks begin to become part of more general financial risk assessments, “the Florida law will become ineffective as ESG is subsumed” into more detailed financial concerns, Owens told The Hill.