May 2 (Reuters) – Florida governor Ron DeSantis signed into law on Tuesday a bill that prohibits state officials from investing public money to promote environmental, social and governance goals, and bans to sell ESG bonds.
The bill is one of the most far-reaching efforts by US Republicans against sustainable investment efforts, and a clear political message from DeSantis, a likely presidential candidate.
Republicans, including some from energy-producing states, say many executives and investors are losing focus on returns as they consider growing issues like climate change and workforce diversity.
“We want them to act as fiduciaries. We don’t want them to be involved in ideological pleasures,” DeSantis said before he signed the bill in a webcast event.
Analysts say the legislation goes further than other state anti-ESG bills, though business groups worry the efforts pose financial risks. Florida’s current law raises some questions about how it will work in practice, analysts said.
For example, fund managers working for agencies such as large state pension funds must include disclaimers in certain communications with portfolio companies to make it clear that they do not reflect the views of Floridians.
Fund managers who don’t include enough disclaimers could face regulatory action, said Joshua Lichtenstein of the law firm Ropes & Grey. But, he added, “It is strange to say that you only speak for some of your clients.”
The law also prohibits the sale of ESG bonds, a popular way to finance renewable energy projects or lower the cost of debt for borrowers if they meet gender diversity or greenhouse gas emissions targets.
Lawyers and credit analysts say the new law could deny municipalities access to large ESG-mandated capital pools. An additional issue is how officials interpret the terms, said Thomas Torgerson, co-head of global sovereign ratings at DBRS Morningstar, which rates debt.
“If we as a rating agency can’t assess environmental, social or governance risk that creates a problem for us. There are climate and weather risks that are more important, especially in a state like Florida, and get in our credit risk assessment,” Torgerson said.
Reporting by Isla Binnie and Ross Kerber, Editing by Rosalba O’Brien
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