Florida Gov. Ron DeSantis\u2002(R) signed into law Tuesday a sweeping ban on sustainable investing.
House Bill 3 bars state and local governments from factoring in environmental, social or governance (ESG) factors in their decision of whether to invest or contract with specific businesses.
It also obligates state-registered banks to make loans to several industries \u2014 including fossil fuels, private prisons or the manufacture and sale of firearms \u2014 that the GOP alleges some large financial firms have been turning away from.
House Bill 3 would bar financial institutions from \u201cdiscriminating against customers for their religious, political, or social beliefs \u2014 including their support for securing the border, owning a firearm, and increasing our energy independence,\u201d according to a fact sheet from the state of Florida.
In his signing ceremony on Tuesday, DeSantis \u2014 standing above a lectern that said GOVERNMENT OF LAWS, NOT WOKE POLITICS \u2014 lambasted ESG as an attempt by \u201cDavos elites\u201d to \u201cimpose ideology through business institutions.\u201d
\u201cThey want to use economic power to impose this agenda on our society,\u201d DeSantis said Tuesday.
\u201cAnd we think in Florida, that is not gonna fly here.\u201d
But financial experts told The Hill that the bill is likely \u201ca political stunt\u201d with little practical impact.
\u201cIt prohibits \u2018banks that engage in corporate activism,\u2019\u201d Shivaram Rajgopal, a professor at Columbia Business School, told The Hill.
\u201cBut what does that even mean? Legally, that\u2019s going to be difficult to define,\u201d he said. \u201cShould banks not get involved if a manager is simply a bad manager, and wastes shareholder capital?\u201d
The anti-ESG bill was largely political \u201cwith little practical effect beyond limiting Florida\u2019s future investment options,\u201d Brandon Owens, vice president of sustainability at consulting firm Insight Sourcing Group, told The Hill.
DeSantis\u2019s anti-ESG turn has not been an especially popular strategy nationwide \u2014 he trails his presumed 2024 presidential rival, former President Trump, by 36 points, according to a new poll.
But the Florida governor has sought to cast himself as leader amid a larger push by national and state GOP lawmakers to crackdown on ESG investing.
DeSantis in February published a book that sought to make the movement against \u201cwoke capital\u201d a key part of his bid for a national platform \u2014 and potentially the presidency.
In March, 19 GOP governors, including DeSantis, released a\u2002statement calling ESG a \u201cdirect threat to the American economy, individual economic freedom, and our way of life.\u201d
The anti-ESG movement in March led to President Biden\u2019s first veto \u2014 overturning a bill that would have barred pension fund managers from considering factors like climate change in making investment decisions.
On Tuesday, Florida GOP leaders framed the bill as necessary to keep small businesses from being unfairly denied access to loans.
DeSantis was joined at the event by the owner of Sovereign Ammo, which lists itself as a \u201cproudly Conservative company with Patriotic values of God, Guns, and Family.\u201d
Another such firm is private prison operator GEO Group, which DeSantis name-checked in February when he announced the bill, according to Florida Politics.
The Boca Raton-based company donated $740,000 to the Republican Governors Association, which itself put $14 million into DeSantis\u2019s campaign coffers in 2022, according to investigative journalist Jason Garcia.
Two GEO Group employees also gave DeSantis\u2019s PAC about $100,000 in 2018, according to the Orlando Weekly.
The company has been in legal trouble for years. In 2021, for example, GEO Group was required to pay $17 million in back pay to detainees at an Immigration and Customs Enforcement (ICE) facility it ran in Washington state \u2014 people who were paid $1 a day, which a federal jury found to be a violation of minimum wage laws.
Another lawsuit filed in March accuses\u2002the private prison operator of using toxic chemicals to clean a California ICE prison \u2014 and continued to do so despite prisoner complaints that it was irritating their skin and causing them to bleed from their noses and mouths.
But as GOP leaders told it, the company\u2019s woes are political in nature.
The private prison operator, which for years has struggled to get investment, was \u201cde-banked\u201d because \u201cthey were contracting with the actual federal government\u201d on immigration enforcement, DeSantis said at the time.
In the ceremony on Tuesday, Florida state House Speaker Paul Renner (R) argued that only political factors had kept the private prison industry from getting investment.
Renner laid out a scenario in which a private prison company goes to the financial side of a bank: \u201cThey look and say you\u2019re a bankable client because your clients are the state governments and the federal governments. Of course, you\u2019re an easy lending decision.\u201d
\u201cAnd they set them out, rejecting them, and putting them into bankruptcy.\u201d
But this idea of being excluded increasingly relies on obsolete ideas of what sustainable investing is, Owens of Insight Group wrote to The Hill.
First, \u201cthe animating concept behind this legislation\u2014namely, that ESG investing is a drag on profitability\u2014is simply not true,\u201d Owens said.
But more and more often, sustainability isn\u2019t something that the financial industry treats separately from profit.
Instead, it is becoming an essential part of profit, he said \u2014 and one that is increasingly folded into a far more traditional concept: risk.
In sustainability thinking, generally \u201cprotecting the environment must be factored in because failure to do so will result in the destruction of our environment and, therefore, end profits,\u201d he wrote.
That concept could swallow the whole law, he said. If environmental risks start getting priced into risks in general, \u201cthe Florida law will become ineffective as ESG is subsumed\u201d into more granular financial questions.
The director of the nation\u2019s first sustainability bank \u2014 based in Saint Petersburg, Fla. \u2014 said the bill could chase his bank out of the state.
Climate First Bank boasts of its position as the first FDIC-insured community bank dedicated to investment in the environment and sustainability.
The list of companies it won\u2019t do business with maps closely to the ones House Bill 3 aims to protect, CEO Ken LaRoe said.
\u201cWe won\u2019t do business with for-profit prisons, guns, porn, bad agriculture, dirty energy, or extractive industry,\u201d he said. \u201cAnd they put our exact exclusionary list in the bill.\u201d
If he stays chartered in the state, every year starting on July 1, LaRoe will have to sign an affidavit swearing he hasn\u2019t discriminated against those industries.
That means, at a start, that the exclusionary list will have to go.
Beyond that, if he has to invest in industries that he considers risky, \u201cWe\u2019ll price it appropriately,\u201d LaRoe said.
\u201cAnd if they choose to bank with us? We\u2019ll take their dirty money and use it to do something good.\u201c<\/p>\n\n\n\n