The latest attack on ESG by Republican state officials is Florida Governor Ron DeSantis’ campaign to bar the Florida State Board of Trustees from adopting environmental, social and governance investment principles. Currently, the SBA does not appear to be a devotee of ESG.
The governor, an avowed conservative, plans to propose at an Aug. 15 SBA meeting that the agency’s fiduciary duties exclude ESG. “From Wall Street banks to massive asset managers and big tech companies, we’ve seen the corporate elite use their economic power to impose policies on the country that they couldn’t get through the election,” DeSantis said in a statement.
DeSantis, a possible 2024 GOP presidential nominee, said “we are protecting Floridians from vigilante capital and asserting the authority of our constitutional system over ideological corporate power.” He also plans to push legislation barring 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 do “the bidding of his big corporate donors and billionaire supporters.” The SBA did not return a request for comment on DeSantis’ initiative.
Not that the SBA is starting a green investing program. The extent of the SBA’s holdings in ESG-friendly companies is not clear, as the organization does not list individual shares held. But the SBA seems reluctant to invest in fossil fuels. For example, the program did invest in two private equity energy limited partnerships managed by Carnelian Energy Capital, which more than tripled in value in the fiscal year ending June 2021 to $49 million.
More problematic for the SBA is that it also has positions in six foreign BlackRock equity funds totaling $11.6 billion. BlackRock, known for its climate advocacy, is a villain in the eyes of some GOP officials. West Virginia Treasurer Riley Moore, a Republican, said he was blocking the state from using BlackRock for banking transactions, arguing that the firm’s goal of net zero would hurt his state’s coal industry. In addition to West Virginia, several other red state governments have opposed ESG, including Texas and Idaho.
Larry Fink, head of asset management giant BlackRock, has been proselytizing ESG investing – although he adds that he is not opposed to investing in fossil fuel companies. His approach is to own shares in these businesses and fight for climate goals from within, as he did in 2021 by backing a successful set of ESG-minded directors at Exxon Mobil. Exxon’s campaign was joined 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 big losses due to stock market woes. SBA, with $240 billion in assets, has 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, the Florida Retirement System, had a decent funding ratio of 83.4%.
The premise of DeSantis’ disdain for ESG investing is that the investment approach underperforms. The evidence on ESG investment performance is mixed. A Harvard Business School study reviewing other research on the topic found that ESG returns were either no better or worse than mutual funds and other non-ESG investment structures. But Morningstar data shows that from 2017 to 2021, ESG-focused mutual and exchange-traded funds posted an annualized 19.5%, besting all S&P 500 funds at 18.4%.
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Tags: BlackRock , ESG , Exxon Mobil , Florida State Board of Governors , Larry Fink , Morningstar , Ron DeSantis , Awakened Capital