Florida State Board Bans ESG Considerations in Managing Pension Plan

The Florida Retirement System should not consider environmental, social, and corporate governance (ESG) standards when investing in companies, says Republican Governor Ron DeSantis. That message was enforced at the August 23 meeting of the Florida Cabinet, when the governor and his fellow trustees of the State Board of Administration unanimously adopted a resolution restricting the use of ESG factors in making investment decisions in the Florida Retirement System’s (FRS’s) defined-benefit plan, according to a press release from the governor’s office.

Instead, Florida’s fund managers should invest in a manner that “prioritizes the highest return,” said the release.

“We’re a big pension system,” DeSantis told radio host Glenn Beck last week. “And some of these businesses are going to have to choose between going down the ESG rabbit hole or being able to be invested with the state of Florida.”

FRS is the pension fund for more than 1 million public-sector workers, retirees, and their surviving spouses. More than 90 percent of its revenue ($46.4 billion in 2021) is from investments, with the remainder ($4.6 billion) contributed by the state, school boards, local governments, and their employees. The fund paid out $7.5 billion in benefits last year, according to a state audit.

FRS routinely exceeds performance benchmarks. Despite the pandemic, the fund’s return on investment (ROI) in 2020 was 28.7 percent. Last year, it earned a net return of 29.4 percent. The FRS portfolio includes investments in 10,174 companies worldwide, and managers have averaged a 10.3 percent annual ROI since 2008.

The State Board of Administration (SBA) administers the fund. DeSantis will lead the board in a discussion of new investment guidelines for the pension fund; the Florida Hurricane Catastrophe Fund ($11 billion); and Florida PRIME ($17 billion), a state-managed local government investment pool, following an Election Day cabinet meeting at the capital in November.

“The Biden administration has made clear its intention to encourage investment using ESG factors,” a draft of the DeSantis proposal says. It commits the state to investments “without considerations for nonpecuniary beliefs or political factors” that further social, political, or ideological interests. If enacted, the funds’ investment managers would be able to consider only a company’s risk and the expected ROI.

Jimmy Patronis, the state’s CFO and an SBA trustee, endorses the proposal and says he is proud to stand with DeSantis to fight to ensure that protections against ESG ratings are codified into Florida law. “Our teachers, law enforcement officers, and state employees, who have worked their entire lives in service to our state, shouldn’t have their pensions squandered because a business doesn’t align with some woke rating agency’s political beliefs,” he says in a video press release.

However, Adam Hattersley, a Democrat who wants to replace Patronis, says Patronis and DeSantis are proposing a solution to a problem that doesn’t exist, because there is no record of SBA funds using ESG as a criterion for investment decisions. “It’s an age-old tactic for politicians to create a problem and solve it, to distract from real ones like a property-insurance crisis,” he says.

DeSantis, who is up for re-election in November, is also considered to be a potential Republican presidential candidate in 2024.

From: BenefitsPRO