I am an attorney who writes about ESG policy, laws, and regulations.
The Florida State Board of Administration, headed by Florida Governor Ron DeSantis, disclosed their investment of $200 million in a green energy fund. This move has caused some critics to believe DeSantis has changed course on ESG. They're wrong.
There is often a disconnect between political rhetoric and policy. In August 2023, Florida Governor Ron DeSantis announced that the Florida State Board of Administration, which oversees Florida's pension system, was divesting from ESG funds. Conservatives declared that ESG was dead in Florida. Liberals claimed that state workers would lose their retirement money. The truth was always in the middle.
Environmental, social, and governance is a type of financial investing where non-financial factors are considered in making investments. In concept, ESG is about giving investors the ability to choose how their money is used. If an individual is willing to take a lower rate of return to feel like they are making a positive impact, they can select a fund that matches their priorities. However, as ESG grew, it became a tool for large fund managers to impose their priorities on corporations. Corporate executives and conservative leaders began to push-back on ESG.
Republican controlled states have enacted measures to push-back on ESG, starting with controlling how state pension funds are invested. Florida was an early adopter, as the Florida Retirement Fund is managed by the Florida State Board of Administration which consists of Governor DeSantis, Chief Financial Officer Jimmy Patronis, and Attorney General Ashley Moody. All three are elected members of the Florida Cabinet and Republicans. Other states require legislative action to implement change.
Contrary to rhetoric, the FSBA policy didn't completely ban ESG. Instead, it put the focus on financial returns, using the pecuniary factors standard established by a Trump era Department of Labor ERISA rule. The pecuniary factors standard places the sole priority of fund managers on financial returns, aligning with the traditional view of fiduciary duty.
Unlike Texas and Kansas who have banned investing in funds that discriminate against certain industries, like oil, Florida allows for funds to invest or divest as they see fit, as long as the primary focus is financial return. That means the state can still invest in funds that check some of the ESG boxes.
On Monday, the FSBA disclosed they had invested $200 million in Blackstone Green Private Credit Fund III, a fund dedicated to investing in green energy. This action seems in direct contrast to DeSantis' anti-ESG rhetoric, and a flip on the FSBA's prior divesting from BlackRock due to ESG stances. However, this conclusion falls into a major fallacy of many who assume ESG is just about environmental issues.
The environmental category of ESG gets a lot of the attention, however the social category is where much of the controversy is found. Differing from Europe, U.S. funds include diversity, inclusion, and equity as part of their social considerations. The Human Rights Campaign's Corporate Equality Index, used by some fund managers and corporations for ESG scores, is focused heavily on LGBTQ issues including a 25% penalty for public actions and statements that do not support the LGBTQ cause.
While Blackstone is a signer of the Principles of Responsible Investing and embraces ESG, their ESG mission statement makes it clear that financial returns is the overriding mission. The Blackstone Green Private Credit Fund III, while it invests in green energy, only does so to make financial returns. Green energy is a growing and profitable area, investing in it makes sense.
While some may decry this investment as a reversal by the FSBA and DeSantis, the reality is they are doing exactly what they promised, focusing on financial returns over politics.
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