Florida Governor Proposes Anti-ESG Law

On July 28, Florida Governor Ron DeSantis proposed legislation that would ban state pension funds from selecting investments based on environmental, social and governance factors, typically considered “ESG investing.” The proposed legislation would amend Florida’s state statute on deceptive and unfair trade practices to prohibit practices by large financial institutions based on ESG social credit score metrics. It would also require fund managers to consider only maximizing the return on investment on behalf of Florida’s retirees when making investment decisions.

This proposed legislation has received growing backlash. Florida’s proposed bill closely mirrors a proposal released in April from the conservative American Legislative Exchange Council. The model policy was essentially a template for state legislatures seeking to implement restrictions on ESG investments, similar to limits proposed in 2020 under the Trump administration. The Department of Labor under President Biden has since backed off on those rules.

The federal equivalent, ERISA, has long required that retirement plan fiduciaries make decisions solely in the best interests of the plan participants and beneficiaries (see 29 CFR 2550.404a-1(a)). Whether and how ESG factors should be considered has long been characterized as a game of regulatory ping pong, shifting with each presidential administration.

Last year, Texas adopted similar rules restricting managers of publicly owned assets from certain investments.  As the nation’s third largest state, Florida’s adoption of this legislation could signal a shift in the institutional investment industry. The state has more than $248 billion in assets, according to the National Association of State Retirement Administrators. Despite these examples, states and the industry generally have been trending towards considering more ESG factors when making investments.