By Anne Sherry, J.D.
The Trustees of the Florida State Board of Administration, including Governor Ron DeSantis, passed a resolution requiring fund managers to invest state funds based solely on “pecuniary factors,” which expressly excludes “the furtherance of social, political, or ideological interests.” Similarly, when voting proxies, the board may not sacrifice return or take on additional risk to promote non-pecuniary factors. DeSantis said that the action pushes back on “the perversion of financial investment priorities under the euphemistic banners of environmental, social, and corporate governance and diversity, inclusion, and equity.”
The resolution is the latest in a chain of attacks on what the governor’s office calls “the ESG mania taking hold of Wall Street and Washington.” It follows state action last December to revoke the authority of outside fund managers to vote proxies on state funds’ behalf. More recently, the state stripped Disney of its special tax status for condemning Florida’s “Don’t Say Gay” law and enacted the “Stop WOKE Act,” the latter of which was ruled unconstitutional.
Under the updates to the board’s investment policy statement for the Florida Retirement System Defined Benefit Pension Plan, investment decisions must be evaluated solely on pecuniary factors. “Pecuniary factor” is defined as 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.
Furthermore, when evaluating an investment decision or voting proxies on investors’ behalf, the board may not subordinate the interests of the participants and beneficiaries to other objectives and may not sacrifice return or take on additional risk to promote non-pecuniary factors.
The board will conduct a review of the governance policies of the pension plan to determine compliance, with a report to be submitted to the trustees by December 15, 2023.
Governor Ron DeSantis said of the resolution, “[T]he tax dollars and proxy votes of the people of Florida will no longer be commandeered by Wall Street financial firms and used to implement policies through the board room that Floridians reject at the ballot box. We are reasserting the authority of republican governance over corporate dominance and we are prioritizing the financial security of the people of Florida over whimsical notions of a utopian tomorrow.”