‘Anti-Woke’ DeSantis Mixes Politics, Money in Florida Pensions

Neil Weinberg
·6 min read
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(Bloomberg) -- When Florida Governor Ron DeSantis took to a stage in July to discuss his plan to ban the state’s pension system from including Environmental, Social and Governance factors in its investment decisions, he framed it as a way to keep politics out of the process.

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What DeSantis didn’t mention is that the $200 billion Florida Retirement System is already being used in a very small way to serve ideological and social objectives. They just happen to jibe with the interests of the governor and his two fellow Republican trustees.

“Our economy’s going to be much better off if everything is not politicized,” DeSantis said while standing in front of a bright red sign proclaiming “GOVERNMENT of LAWS. NOT WOKE CEOs.”

Under DeSantis, the State Board of Administration, which manages Florida’s pensions and other funds, has halted new investment in the parent of a popular ice cream brand for closing shops in Israeli-controlled territories. And it’s continued to support a program whose primary mission is to pump hundreds of millions of dollars into supporting Florida businesses and jobs.

In response to questions, DeSantis’s press office referred to his earlier statements on ESG.

“As a fiduciary, the State Board of Administration’s (SBA) obligation has been and will continue to be focused on maximizing returns for our state’s most important public servants over and above political, social and ideological objectives,” Emilie Oglesby, an SBA spokeswoman, said in an email. “Neither the SBA nor its managers use ESG ratings as a way to screen or limit the available investment opportunity set.”

The US Labor Department, the federal regulator that oversees corporate pensions and whose guidance is followed by many public ones, has lumped programs like Florida’s together with ESG under the rubric of “impact” or “economically targeted” investing.

When pension trustees pursue such side hustles, “financial returns and risk to beneficiaries must be paramount,” the agency has said. The cost of veering from these guidelines could mount quickly as public funds rush to enact policies for or against ESG, and around controversial investments such as firearms and energy.

The Florida Retirement System has been a solid performer in recent years, posting a 9.6% annual return in the decade through June 2020, according to the National Association of State Retirement Administrators. That put it ahead of most public pension systems and in line with mega-cap peers in states like California, New York and Wisconsin.

To hear DeSantis tell it, his state’s ban on ESG is part of a policy of pursuing a lone objective. Investment decisions “must be based purely on pecuniary factors [which] do not include the consideration of the furtherance of social, political, or ideological interests,” his office said in unveiling the anti-ESG policy.

The term “pecuniary factors” was originally coined by Donald Trump’s Labor Department and has been interpreted by Wall Street as code for a hardline policy against ESG and other mission-related investments, according to Joshua Lichtenstein, a partner in Ropes & Gray’s ESG practice.

“It’s a very specific term with a very specific history,” he says. “DeSantis’s language indicates a strict interpretation.”

The governor left no doubt that his interpretation of pecuniary factors excludes ESG. But apparently not “Judea and Samaria,” as he described the Israeli-occupied territories where Ben & Jerry’s closed its shops, triggering Florida’s investment office to add the parent to its “scrutinized companies that boycott Israel” list in July 2021.

“As a matter of law and principle, the State of Florida will not tolerate discrimination against the State of Israel or the Israeli people,” the governor said in a press release at the time. “I will not stand idly by as woke corporate ideologues seek to boycott and divest from our ally, Israel.”

The decision, which prohibits new investments but does not require divestment from existing ones, affected Unilever Plc, which acquired Ben & Jerry’s in 2000. The British consumer goods giant has been a relatively strong performer this year, with its stock dipping slightly amid double-digit market losses.

Separately, the State Board of Administration runs an impact-investing initiative known as the Florida Growth Fund. It focuses on “technology and growth enterprises that have a significant presence in the state of Florida.”

The result of a 2008 law, it has invested over $800 million in 69 technology and growth companies and 46 private-equity funds under DeSantis and his predecessors. Enterprises that have received program funds have put $1.6 billion into capital spending and created 23,658 jobs, “which was consistent with increases in statewide jobs,” according to a January report by Florida’s Office of Program Policy Analysis and Government Accountability.

For Florida’s investment office, the growth program appears to have yielded mediocre results. Three of its funds, founded between 2009 and 2014, have performed in the second, third and fourth quartiles among peers, according to Bloomberg data.

“It is the job of the SBA to comply with all laws adopted by the Florida Legislature and all rules and policies of the Trustees regardless of the law’s enactment date,” spokeswoman Oglesby said. She declined comment on specific investments.

Florida has plenty of company in straying from the pecuniary straight-and-narrow. Scores of public, corporate and union pensions make economically targeted investments to support favored causes, including tech ventures, affordable housing and job creation. In targeting companies deemed hostile toward Israel, Florida has been joined by states as politically diverse as Arizona, New Jersey, New York and Texas.

Read More: BlackRock ESG Troubles Mount as Missouri Pulls $500 Million

Politics isn’t the only factor animating the ESG debate. Investors also remain split over whether its goal is to save the world or merely screen a portfolio for assets especially vulnerable to risks like climate change.

The confusion was on display in Texas last summer when the state boycotted financial firms that shun fossil fuel investments. The following month, the Teacher Retirement System of Texas added an ESG reference to its investment policy statement.

“In making investment decisions, the Investment Division will consider ESG factors that are material to long-term returns and levels of risk,” it said.

In Florida, the governor is not the only one playing ESG politics. BNY Mellon listed the Florida SBA’s adoption of its ESG data and analytics among its accomplishments in its 2021 Enterprise ESG Report. The bank was compensated for its analytics software not with dollars but with the right to put out a joint press release, according to a contract between a bank affiliate and Florida's investment office that was obtained through a public records request.

BNY Mellon declined to comment, citing a policy of not discussing client matters.

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