Sun Sentinel Palm Beach Edition
Florida’s ban on ESG investing will cost us all
Three people walk into a bar: A Proud Boy, a banker and a Florida legislator who has never seen a balance sheet.
When they stumble out, the Proud Boy has Florida bank funding for his next Jan. 6 adventure, and the lawmaker is the reason why.
Railing against Environmental, Social and Governmental policies, or ESG, is all the rage among the rage-addicted set in Tallahassee these days. But rage is no excuse for House Bill 3.
“Some guy said he didn’t get to open a bank account because of his guns” and “Companies smart enough to get ahead of climate change are too woke for me” are not justification to create a secret tax on city and county budgets, inject bad politics into business practices and, yes, force bankers to do business with terrorist wannabes under threat of a $10,000 fine.
ESG-linked assets may be a $35 trillion industry, but red states see it as a target. “Perversion!” Gov. Ron DeSantis called it in his executive order banning state pension funds from using ESG considerations.
Really? Governance standards for corporations have been routine for two decades, put into place to head off another Enron-like accounting disaster.
FPL believes in it
Commitments to the environment are plain vanilla capitalism. NextEra, parent to the state’s biggest utility, Florida Power & Light, has staked its future on ESG.
No one would accuse FPL or its parent of runaway liberalism; certainly not the Republican PACs and Florida lawmakers who accepted millions in campaign contributions from the companies.
NextEra just wants to still be making money when the last coal seam runs out.
The word “social” is an elastic term, and the one most likely to be demonized. It suggests activism in business and finance where, critics say, activism has no place. It can mean a company’s commitment to diversity in dealing with vendors, or a refusal to deal with countries based on human rights abuses.
For states, it can mean anything from divesting pension funds of investments in fossil fuel companies, as Maine did, or forcing gotcha politics down the throats of businesses, which this bill does.
It would force state-licensed financial institutions to do business with anyone, regardless of their political and social beliefs, associations or line of business.
This dovetails with the recent untrue allegation that a gun shop owner was denied bank credit because he sold firearms. Not so, Wells Fargo replied in a statement. It was happy to do business with gun businesses — just not this one.
But maybe banks, credit unions and payday lenders do not want to do business with someone whose political beliefs endorse overthrowing democracy.
Maybe they don’t want the Proud Boys’ money.
Too bad.
Gauging risk is fundamental to financial institutions. But under this bill, bankers would be barred from gauging the totality of financial risks associated with a customer.
Then there’s the secret tax.
The bill aims to ensure companies with ESG policies are stripped from local borrowing.
And local governments have to borrow. Just as people rarely have cash on hand to buy a house outright, cities, counties and school districts rarely have extra millions on hand to pay for projects such as school roofs.
They must issue bonds, sell them to investors and pay investors back with interest. They don’t do it alone. Underwriters sell bonds. Rating agencies score creditworthiness.
The largest and most experienced of them take ESG into consideration. That could be enough to get them blacklisted.
‘Unspecified’ costs for us
And what is the cost of losing access to highly experienced investment banking partners? An asleep-at-the-wheel staff analysis of HB 3 shrugs it off: Unspecified.
But the analysts add that local government budgets will probably be able to absorb these mystery costs.
In fact, costs have been public for a year. A 2022 University of Pennsylvania Wharton School of Business study found Texas taxpayers were on the hook for an additional $300 to $530 million in interest in the first eight months after Texas passed antiESG laws.
Then there’s the staff comment that local budgets can absorb extra costs.
Budgets don’t absorb extra costs. People do. People pay the extra taxes for higher interest rates when roads need to be fixed, schools need to be built, water plants need to be updated.
It has already started. ESG investment-friendly California has traditionally had a slightly worse bond credit rating than Florida’s sterling rating.
But since 2022, when Florida ramped up its anti-ESG rhetoric, California has been getting a better interest rate than Florida, according to data cited by Bloomberg editor Matt Winkler. Florida now pays $4.3 million more for every $1 billion of bonds sold than California does, he wrote.
Even Tallahassee should be able to see who’s going to pay for that social activist math.