The latest anti-ESG attack by Republican state officials is Florida Governor Ron DeSantis’ campaign to ban the Florida state board of directors from adopting environmental, social and governance investment principles. At the moment, the SBA does not appear to be an ESG devotee.
The governor, an outspoken conservative, plans to propose at an SBA meeting on August 15 that the body’s fiduciary duties should exclude ESG. “From Wall Street banks to huge wealth managers and big tech companies, we’ve seen the corporate elite use their economic power to impose policies on the country they couldn’t get at the polls,” DeSantis said in a statement.
DeSantis, a possible presidential contender for the GOP in 2024, said that “we are protecting Floridians from awakened capital and asserting the authority of our constitutional system over the ideological power of corporations.” He also plans to pass legislation banning the SBA from making ESG-themed investments and requiring them to focus on maximizing returns.
A liberal organization called DeSantis Watch condemned the governor’s proposal to carry out “the orders of his large corporate donors and billionaire supporters.” The SBA did not return a request for comment on DeSantis’ initiative.
It’s not that the SBA is embarking on a green investment program. The extent of the SBA’s holdings in ESG compliant companies is unclear, as the organization does not list individual title deeds. But the SBA does not appear to be opposed to investing in fossil fuels. For example, the program invests in two energy private equity limited partnerships managed by Carnelian Energy Capital, whose value more than tripled in the fiscal year ending June 2021, to $ 49 million.
More problematic for the SBA is that it also has positions in six BlackRock foreign equity funds, totaling $ 11.6 billion. BlackRock, known for his climate advocacy, is a villain in the eyes of some GOP officials. West Virginia treasurer Riley Moore, a Republican, said he is preventing the state from using BlackRock for banking transactions, arguing that the company’s net zero target would harm his he state’s coal industry. In addition to West Virginia, several other red state governments have moved against ESG, including Texas and Idaho.
Larry Fink, head of asset manager giant BlackRock, has been proselytizing for ESG investments, although he adds that he is not opposed to investing in fossil fuel companies. His approach to him is to hold stocks in these businesses and fight for climate goals from within, as he did in 2021 by supporting a successful list of ESG-oriented directors at Exxon Mobil. He was joined in the Exxon campaign by several large pension funds, such as the California State Teachers’ Retirement System, which shares Fink’s strategy.
Overall, the SBA appears to be holding up relatively well, at a time when other public pension funds have suffered large losses due to stock market woes. The SBA, with $ 240 billion in assets, lost just 6.7% this year through May, a third of the comparable decline in the S&P 500. As of fiscal 2021, its main fund, Florida Retirement System, had a fair funding percentage of 83.4%.
The assumption of DeSantis’ disregard for ESG investing is that the investment approach delivers inferior results. Evidence is mixed on ESG’s investment performance. A Harvard Business School study, which looked at other exams on the subject, found that ESG returns were neither better nor worse than mutual funds and other non-ESG investment structures. But Morningstar data indicated that, from 2017 to 2021, ESG and exchange-traded mutual funds reached 19.5% annually, outperforming all S&P 500 funds, 18.4%.
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Tags: BlackRock, ESG, Exxon Mobil, Florida State Board of Administration, Larry Fink, Morningstar, Ron DeSantis, woke up capital