The governors of 18 U.S. states* announced today the formation of an alliance, led by Florida Governor Ron Desantis, aimed at coordinating actions to “protect individuals from the ESG movement” with actions including banning the use of ESG considerations in state and local pension funds.
The new proposed laws form the latest move in the ongoing anti-ESG movement by Republican politicians in the U.S., which have seen several states target investors over their support for energy transition-focused investments and disclosure, warn law firms about the advice they provide to clients regarding ESG initiatives, and pressure proxy advisory firms over their support for climate and DEI-related issues.
DeSantis has been among the most vocal anti-ESG advocates, barring fund managers for state pension funds last year from incorporating ESG factors in the investment process, and recently pulling $2 billion from BlackRock over its use of ESG factors. Last month, the Florida governor proposed new legislation with a broad range of anti-ESG rules, including prohibiting the use of ESG in all investment decisions at the state and local level, prohibiting all state and local entities from considering – or even requesting – ESG information as part of the procurement and contracting process, and banning the use of ESG factors by state and local governments when issuing bonds.
In a statement announcing the formation of the new alliance on Thursday, DeSantis said that the ESG movement “threatens the vitality of the American economy and Americans’ economic freedom.” DeSantis added:
“At my direction, Florida has led the way in combatting the pernicious effects of the ESG regime by directing our state pension fund managers to reject ESG and instead focus on obtaining the highest return on investment for Florida’s taxpayers and retirees.”
The new alliance follows recent votes in Congress to overturn a Biden administration rule allowing fund managers for ERISA plans to include ESG considerations in the investment process, and also allowing climate and ESG factors to be considered by fiduciaries when exercising shareholder rights, such as in proxy voting, but requiring that considerations “must be based on factors that the fiduciary reasonably determines are relevant to a risk and return analysis,” such as the economic effects of climate change or other ESG factors on an investment. The Biden initiative was itself a reversal of a Trump administration rule that put strict limits on ESG investing in ERISA plans.
With Biden promising to veto the Congressional action, the alliance said in a statement that they can “work together and leverage our state pension funds to force change in how major asset managers invest.”
The Governors’ statement outlines a series of actions to be considered by the alliance, such as “blocking the use of ESG in all investment decisions at the state and local level,” prohibiting state fund managers from considering ESG factors in their investments on behalf of the state, as well as eliminating the consideration of ESG factors in bond issues by state and local governments. The proposed actions also include banning the use of “Social Credit Scores” by financial institutions in banking and lending practices.
The Governors’ statement added:
“The proliferation of ESG throughout America is a direct threat to the American economy, individual economic freedom, and our way of life, putting investment decisions in the hands of the woke mob to bypass the ballot box and inject political ideology into investment decisions, corporate governance, and the everyday economy.”
*States participating in the alliance include Alabama, Alaska, Arkansas, Florida, Georgia, Idaho, Iowa, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Oklahoma, South Dakota, Tennessee, Utah, West Virginia, and Wyoming.