BlackRock Sticks with Florida's Billions as DeSantis Fights ESG Battle

Florida Governor Ron DeSantis is taking a stand against ESG investing and "woke capitalism." State officials have pledged to purge such thinking from pension funds and are targeting BlackRock Inc. because of its support for the idea. DeSantis believes that this type of investing is bad for Florida and its economy, and he is determined to put a stop to it.

Although BlackRock no longer manages investments for the state of Florida, it turns out that there wasn't a lot of ESG to purge. A review of public records shows that BlackRock didn't put the bulk of Florida's money into environmental, social and governance investments in the first place.

The Florida State Board of Administration (FSA) oversees around $180 billion in pension money, but it didn't invest in any assets labeled as ESG (environmental, social, and governance) when DeSantis ramped up his campaign last year, according to data compiled by Bloomberg. Even after the state's treasury said it would pull $2 billion from BlackRock (one of the world's largest asset managers) amid DeSantis's criticism, BlackRock still manages $12.9 billion of the state's retirement funds.

This week, Florida also barred a separate public employees' fund from adopting sustainable strategies. However, less than 1% of the $5.1 billion pool had been invested in ESG-labeled funds, according to Florida's chief financial officer.

"I don't think this accomplished anything," said Jason Pizzo, a Democratic state senator and member of the appropriations committee, in an interview. "It's just another in a series of announcements that don't result in any real change or progress. It's ineffective and it doesn't help anyone."

DeSantis, who is considered a front-runner for the 2024 Republican nomination for president, is one of the most high-profile opponents of ESG investing. However, a review of Florida's pension funds suggests that little has changed in terms of how Florida invests its pension money since DeSantis began campaigning against ESG investing.

Bryan Griffin, press secretary for Governor DeSantis, has stated that the Governor is protecting consumers by preventing entities from putting an arbitrary financial metric and ideological agenda above fiduciary interests. He went on to say that BlackRock and 48 other asset managers have agreed to abandon ESG metrics when managing the state's money.

BlackRock said in a statement last week that it is committed to the Florida State Board of Administration's mandate of prioritizing financial performance consistent with their investment objectives. This comes after Florida said that investment decisions cannot consider social, political, or ideological interests.

BlackRock did not want to say anything else on the matter.

The vast majority of the money in 13 BlackRock-labeled funds in the Florida pension portfolio was invested in broad stock and bond indexes, according to public records. This means that the portfolio is diversified and not invested in any one particular stock or bond. This strategy is often used by pension funds in order to minimize risk and maximize returns.

A spokesperson for the SBA said that the organization has never invested in order to make social statements.

Pizzo, the Democratic state senator, said he plans to ask the governor’s advisers how much, if any, money has been shifted out of Florida’s pension funds because it was invested using ESG criteria. Pizzo said he sees no signs that Florida has significant stakes in ESG investments.

"Most fund managers are not affected by Florida's stance on social impact investing," said Heather Wyckoff, a partner at Schulte Roth & Zabel law firm who advises investment funds on ESG. "Most fund managers do not change how they set up their products or how they invest their products based on this issue."

Republican state officials in the US have been campaigning against ESG investing, claiming that it hurts their economies and pensions. They have targeted BlackRock and its CEO Larry Fink, who warned other CEOs in 2020 that climate change presents a financial risk. At least six states have said they plan to pull money from BlackRock, totaling more than $3 billion.

Some states have withdrawn a combined total of more than $3 billion from BlackRock.

In December, Florida announced that it was withdrawing $2 billion from BlackRock, the largest amount of any state. However, Florida signaled this month that BlackRock and other asset managers could still oversee its pension funds, as long as they don’t use ESG investing strategies.

BlackRock is continuing to do business with Florida, but Governor DeSantis has promised more legislative action on ESG investing, including a possible ban on banks using "ESG scoring" in loans.

The Florida governor’s campaign against “woke capitalism” has helped spur a backlash from Democrats and other advocates of social investing. They are pressuring the biggest money managers, such as BlackRock, to do more to support sustainable investing.

This week, New York City Comptroller Brad Lander and three New York City pensions called for four major banks to publish greenhouse gas emissions targets for 2030. The banks in question are Bank of America Corp., Goldman Sachs Group Inc., JPMorgan Chase & Co., and Royal Bank of Canada. Lander and the pension funds believe that setting these targets will help the banks do their part in combating climate change.

In an interview this month, Lander said he plans to press BlackRock to take a stronger stance on climate change this year. BlackRock managed about $41.5 billion for three New York City pensions as of the end of October.

Lander said that the red state treasurers and AGs are engaging in a political distraction.

In a recent interview with Bloomberg, BlackRock CEO Larry Fink said that the debate around ESG (environmental, social, and governance) investing has become "ugly and polarizing." Fink noted that while there are valid criticisms of ESG investing, he believes that the approach can be a powerful tool for creating long-term value.

Despite the attacks, BlackRock still reported positive earnings for the fourth quarter. Clients poured $146 billion into the money manager's long-term products, which beat the $124 billion estimate of analysts surveyed by Bloomberg.