The average ESG fund has 41% higher fees than the average non-ESG fund. That’s great news for asset managers like Blackrock who collect those fees but bad news for the everyday worker whose retirement account is growing more slowly than it otherwise would.

Many ESG funds are also underexposed to the oil industry, but 7 of the 10 most profitable companies in the world in 2022 were oil companies. That’s bad for normal people who invest their retirement money into these funds. Yet often, people lack knowledge, a choice, or both when it comes to asset managers putting their retirement money into higher-fee, lower-profit ESG funds.

To address that problem, Florida just passed a new anti-ESG law that takes effect on July 1, 2023.

Investment decisions about retirement funds & government money must be made solely on the basis of financially relevant factors

The law prohibits the following types of finance companies and government entities from making investment decisions on the basis of ESG factors (unless such factors are materially relevant to investment risk or returns):

• Banks that hold state or local government deposits.
• Retirement plan managers.
• Any investment adviser that manages money on behalf of any state or local government entity in Florida (including Florida College System Institutions and state universities).
• The Florida State Board of Administration.
• Local governments in Florida.

Financial services may not be denied on the basis of political or ESG reasons

The new law also aims to stop the political weaponization of banks.

“In Florida and across the nation, we’ve heard from law-abiding small business owners and consumers who’ve been denied access to financial services because of where they work or what they believe in…”

Florida Governor Ron DeSantis

Specifically, the law prohibits many types of companies from denying service to businesses or individuals on the basis of someone’s political opinions or affiliations, legal firearm ownership or use, legal participation in any particular industry (e.g. oil extraction of firearm manufacturing), support of law enforcement (e.g. by managing ICE detention centers), or failure to comply with ESG rating criteria (except to the extent that such criteria are part of state or federal law). Companies subject to this law include:

• Banks
• Credit unions
• All types of savings and financial institutions (F.S. chapter 655)
• Trust companies
• Consumer lending companies licensed under F.S. chapter 516
• Money services businesses (including money transmitters, currency exchanges, and businesses that check cash checks or issue money orders)

That means, for example, a Florida bank may not deny service to a firearm manufacturing company or a company involved in the oil & gas industry unless there is some other risk factor for such companies that isn’t related to their industry.

State & local governments may not issue ESG bonds

The new law also prohibits the state and local governments of Florida, as well as special political entities (such as port authorities, housing financing authorities, and community development districts) from issuing ESG bonds. Specifically, the term “ESG bond” here refers to a bond which the bond issuer directly or through a third-party verifier labels or designates as an ESG bond or a bond which will finance an ESG-labeled project.

The new law does not prohibit private companies from issuing ESG bonds.

On the one hand, this will prevent taxpayers from footing the bill to pay for the ESG verification process as well as ongoing ESG compliance costs. On the other hand, certain institutional asset managers demand ESG investments so it’s possible that preventing a Florida municipality from issuing ESG bonds could reduce demand for that municipalities bonds which could mean the municipality (and therefore its taxpayer residents) pay more in interest on those bonds. A mathematical ROI analysis would be needed to determine which of those costs is likely to be bigger.

Government contracts may not be awarded on the basis of ESG criteria

The new law prohibits government entities involved in state government procurement from giving preference to any vendor based on the vendor’s social, political, or ideological interests. Information related to such interests may not even be requested from vendors as part of the procurement process.

Appendix A: What is a pecuniary factor?

As used in the new Florida law, the term “pecuniary factor” means a variable that is prudently expected to have a material effect on the risk or returns of an investment, based on appropriate investment horizons consistent with applicable investment objectives and funding policy. No consideration of any social, political, or ideological interest may be taken into consideration when determining whether or not a variable is a pecuniary factor.

Appendix B: What is an ESG bond?

Florida’s new law defines an ESG bond as any note, general obligation bond, revenue bond, special assessment bond, special obligation bond, private activity bond, certificate of participation, or other evidence of indebtedness or obligation that has been designated or labeled (by either the issuer themself or a third-party verifier that contracts with the issuer to conduct an external review and independent assessment of proposed ESG bonds to ensure that such bonds may be designated or labeled as ESG bonds or will be used to finance a project that will comply with applicable ESG standards) as a bond that will be used to finance a project with an ESG purpose.

The term includes (but is not restricted to) green bonds, Certified Climate Bonds, GreenStar designated bonds, and other environmental bonds marketed as promoting a generalized or global environmental objective.

Importantly, the law only bans ESG bonds which are issued by a state or local government or political entity. That includes any industrial development authority, housing financing authority, R&D authority, community redevelopment agency, community development district, regional transportation authority, port authority, or water and sewer district.

However, in general, private companies in Florida are still free to issue ESG bonds.

Appendix C: What types of activities does Florida Statutes chapter 516 regulate?

F.S. chapter 516 governs the activities of certain businesses which make and collect consumer finance loans.

Appendix D: What types of activities does Florida Statutes chapter 560 regulate?

F.S. chapter 560 governs the activities of money services businesses. Under this chapter, a money services business a person or business who acts as a payment instrument seller (e.g. a business that sells money orders or travelers checks), foreign currency exchanger, check casher, or money transmitter.

Appendix E: What types of activities does Florida Statutes chapter 655 regulate?

F.S. chapter 655 governs the activities of financial institutions generally. This chapter applies to all state-authorized or state-chartered financial institutions including banks, federal savings or thrift institutions, trust companies, international bank agencies, international bank branches, and credit unions.

Appendix F: What types of activities does Florida Statutes chapter 215 regulate?

F.S. chapter 215 governs the financial activities of Florida’s state and local government entities.

Appendix G: What types of activities does Florida Statutes chapter 287 regulate?

F.S. chapter 287 governs Florida’s government procurement of personal property, commodities, transportation, insurance, and other contractual services. Some of the rules in this chapter govern the eligibility of businesses that may be awarded government contracts.