This post serves as an update to our prior blog post analyzing the impact of this anti-ESG state legislation on public retirement plan investing.
Over the past year, 17 states have proposed or adopted state legislation limiting the ability of the state government, including public retirement plans, to do business with entities that are identified as “boycotting” certain industries based on environmental, social, and governance (ESG) criteria or goals or companies that consider ESG factors in their investment processes.
Florida is the most recent state to adopt guidance that would restrict ESG activities using state assets. Following a July announcement from Florida’s Governor Rick DeSantis indicating his intent to restrict ESG investing, the Florida State Board of Administration adopted a resolution on August 22 that bars the state from including ESG factors in its investment management practices.
This attached chart summarizes the anti-ESG legislative and administrative mandates (Anti-ESG Bills) proposed or adopted in 17 states and classifies them into sub-groups by type of ESG activity that is restricted under the proposed or adopted bill or resolution.
Boycott Bills
Boycott Bills target “financial institutions” that “boycott” or “discriminate against” companies in certain industries and prohibits the state from doing business with such institutions and/or from investing the state’s assets (including pension plan assets) through such institutions. Boycott Bills most commonly target “discrimination against” fossil fuel–related energy companies, but some states have also targeted companies that “boycott” mining, production agriculture, or production lumber.
No ESG Investment Bills
No ESG Investment Bills prohibit the use of state funds for the purpose of ESG or social investment. Under this type of Anti-ESG Bill, the state would be specifically prohibited from investing in strategies that consider ESG factors for any purpose other than maximized investment returns.
If you have any questions about how these state regulations may impact retirement plan investment or impact, corporate activities, or investment products, please reach out to any of the authors of this article or your other Morgan Lewis contacts.