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Robert Bloink and William H. Byrnes

Portfolio > Portfolio Construction > ESG

Florida’s DeSantis Swings Back at ESG With New Law

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What You Need to Know

  • Florida Gov. Ron DeSantis signed House Bill 3 into law this week.
  • It prohibits plans from investing based on non-pecuniary factors, including ESG factors.
  • The new law is likely to create complications for investment managers engaging in a wide range of practices.

The battle over whether consideration of environmental, social and governance (ESG) factors should be considered in retirement plan investing continues to rage on. The latest in the saga involves a new Florida law that could create significant complications for investment managers and plan sponsors. The new law restricts any state or local governments from considering any non-pecuniary (or non-financial) issues when selecting their investments beginning July 1.

Because the state of Florida is a frequent investor in funds, this uniquely restrictive law will almost certainly significantly affect investment managers and retirement plans. The law itself is much more restrictive and departs from some of the rules that have been put into place by other states — so it’s important for advisors to pay close attention to the details in the coming months.

HB 3: Background

Florida Gov. Ron DeSantis signed House Bill 3 (HB 3, also titled “An Act Relating to Government and Corporate Activism”) into law on Tuesday. The law is one of the most restrictive in the nation and extends to all funds invested by state and local governments in the state of Florida — including assets held by retirement plans.

Generally speaking, the Florida law prohibits plans from investing based on non-pecuniary factors, including ESG factors. “ESG factors” are designed to assess whether companies are environmentally or socially conscious. ESG investing, also known as “sustainable investing” is a term given to investment strategies that consider more than an investment’s profitability when making investment decisions.

“Pecuniary factors” is defined as any factor that is expected to have a material impact on the risk or returns of any given investment, consistent with investment decisions, that does not include consideration of social, political or ideological factors.

At the federal level, President Joe Biden issued his first presidential veto to keep a set of federal ESG-neutral regulations in place. The House of Representatives failed to secure the required two-thirds vote that could have overridden Biden’s veto.

Under those regulations, it is up to the responsible plan fiduciary to determine whether ESG factors are relevant to an investment decision — with the investment’s potential financial performance remaining the key driving consideration. Florida’s law essentially prohibits all consideration of ESG factors by applicable parties.

Unique Aspects of HB 3

Florida’s HB 3 diverges from the laws enacted in other states on many different levels. Its requirements are much more specific than a mere prohibition of consideration of ESG factors in investment decision practices.

Under the law, investment managers are required to complete an annual certification process. Each year, investment managers are required to certify that they are complying with Florida’s fiduciary standards and unsafe and unsound practices standard.

More specifically, they must state that they have not taken any actions that would subordinate the interests of the participants and beneficiaries of investment funds to non-financial objectives or undertaken any additional investment risk to promote a non-financial issue. Sanctions will apply for failure to provide the certification or for providing a materially false certification. Civil and administrative penalties may also apply. The certification will be made on a form provided by the Florida Financial Services Commission.

The law also prohibits the consideration of ESG factors in selecting government contractors or giving preferences to potential contractors based on political, social or ideological issues.

Financial institutions in Florida will also be prohibited from engaging in “unsafe and unsound practices.” This means banks and other financial institutions will be prohibited from refusing to conduct business with, or discriminating against, service providers based on the provider’s political or religious beliefs (or any other factor that is not an impartial and risk-based standard). This is the newly dubbed “unsafe and unsound practices” standard created under HB 3.

Investment managers who invest public dollars must also comply with a new “stickering” requirement. If the manager discusses any type of ESG factor when communicating with a company, they must include a disclaimer that contains the following statement: “The views and opinions expressed in this communication are those of the sender and do not necessarily reflect the views and opinions of the people of the state of Florida.”

If the disclaimer is not provided, the Florida governmental unit or agency gains the right to terminate any contract with the investment manager executed after July 1, 2023.


Consideration of ESG factors is a politically charged issue. While Florida is the most recent state to join the debate, its new law is more restrictive and specific than those applicable in other states — meaning that it is likely to create complications for investment managers engaging in a wide range of practices.

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