Florida state board bans ESG considerations in managing pension plan

The Florida Retirement System should not consider environmental, social and governance standards when investing in companies, says Republican Gov. Ron DeSantis. And that message was enforced at the Aug. 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 FRS defined benefit plan, according to 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 a million public sector workers, retirees and their surviving spouses. More than 90% 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 benchmarks for 20-, 25- and 30-year performance periods, with annualized returns of 7.4%, 8.2%, and 9%. Despite the pandemic in 2020, the fund’s return on investment was 28.7%. Last year, it earned a net return of 29.4%. The FRS portfolio includes investments in 10,174 companies worldwide, and managers have averaged an annual 10.3% return on investment since 2008.

The State Board of Administration 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, investors could consider only a company’s risk and the return on investment.

Jimmy Patronis, the state’s chief financial officer and an SBA trustee, endorsed the proposal and said he was proud to stand with DeSantis to fight to ensure that protections against ESG ratings are codified into Florida law to prevent workers’ pension contributions from being used to further a cause.

Related:  Asset managers renaming ESG funds told to brace for backlash

“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, said he and DeSantis are proposing a solution to a problem that doesn’t exist, because there is no record of SBA using ESG to make investments. “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 reelection in November, also is considered to be a potential Republican presidential candidate in 2024.