ESG influencing company strategy, increasing oil market vulnerability: reports

A resolution passed by the trustees of the Florida State Board of Administration with the approval of Governor Ron DeSantis is barring state pension fund managers from making fiduciary decisions based on environmental, social and governance criteria.

“As used in this section, ‘pecuniary factor’ means a factor that the board prudently determines is expected to have a material effect on the risk and return of an investment based on appropriate investment horizons consistent with the fund’s investment objectives and funding policy. Pecuniary factors do not include the consideration of the furtherance of social, political or ideological interests,” stated the resolution.

The move is meant to ensure political perspectives don’t have an undue influence on the economy, “Today, we’re here to discuss a problem that has become, really, very prevalent in the upper echelons of our society and that is imposing woke ideology on the economy,” said DeSantis in a press release. “What you’ve seen is a rise in something called ESG . . . where they would grade companies based on how they’re performing on those metrics. It raises the question: who governs society?”

Read: Canadian institutional investors more likely to integrate ESG than global peers: survey

To ensure the resolution is followed, the SBA will conduct a comprehensive review of the Florida Retirement System — a defined benefit pension plan — that’s expected to be released on Dec. 23, 2022. Currently, the US$198 billion state-sponsored plan includes several non-fiduciary criteria in its governance criteria, including one barring investments in companies participating in a boycott of Israel.

The move makes Florida the first state to set out a position formally excluding ESG considerations from investment criteria. At the federal level, rules established under President Joe Biden’s administration don’t permit pension funds to consider non-pecuniary factors, including some ESG factors, in investment decisions.

In March 2021, the Department of Labor released a statement saying the rules would no longer be enforced because they have a chilling effect on pension plan sponsors integrating ESG factors into investment decisions, even where they did have a pecuniary impact.

In Canada’s existing legal framework, incorporating ESG considerations in investment decisions isn’t prohibited or required by existing legislation.

Read: ESG integration gaining steam as institutional investors challenge myths