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What is ESG and why is Florida divesting $2B from BlackRock?

Florida’s CFO says he doesn’t “trust BlackRock’s ability to deliver” for taxpayers

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Jimmy Patronis, Florida’s chief financial officer, speaks during a campaign rally for Republican Florida Gov. Ron DeSantis.

Jimmy Patronis, Florida’s chief financial officer, speaks during a campaign rally for Republican Florida Gov. Ron DeSantis on Monday, Nov. 7, 2022, in Hialeah, Florida. Patronis announced the state treasury will begin divesting $2 billion from asset management company BlackRock.

Lynne Sladky, Associated Press

Jimmy Patronis, Florida’s chief financial officer, announced Thursday that the state treasury will begin divesting $2 billion from asset management company BlackRock. State officials voiced concern over BlackRock’s approach to investments related to companies who rate high in environment, social and governance (ESG) scores — an approach conservatives have criticized.

“It’s my responsibility to get the best returns possible for taxpayers,” Patronis said in a statement. “As major banking institutions and economists predict a recession in the coming year, and as the Fed increases interest rates to combat the inflation crisis, I need partners within the financial services industry who are as committed to the bottom line as we are — and I don’t trust BlackRock’s ability to deliver.”

“I don’t trust BlackRock’s ability to deliver.”

Patronis, a Republican who was just elected to another four-year term, ordered the Florida Treasury Investment Pool to withdraw funds from BlackRock, freezing $1.4 billion worth of long-term securities and $600 million worth of short-term overnight investments.

Florida is now the fourth state to divest funds from BlackRock.

BlackRock responded to Florida’s withdrawal of taxpayer money in a statement to the media: “We are disturbed by the emerging trend of political initiatives like this that sacrifice access to high-quality investments and thereby jeopardize returns, which will ultimately hurt Florida’s citizens. Fiduciaries should always value performance over politics.”

But the Florida Republican told Fox News’ Brian Kilmeade that he is concerned that the taxpayer’s investments are being used to further ideological agendas rather than maximize returns for the stakeholder.

“BlackRock CEO Larry Fink is on a campaign to change the world,” Patronis said in his statement. “To meet this end, the asset management company has leaned heavily into Environmental, Social, and Governance standards — known as ESG — to help police who should, and who should not gain access to capital,” he said.  

Forbes Advisor described the investing practice ESG earlier this year as “a strategy you can use to put your money to work with companies that strive to make the world a better place.”

ESG investing relies on independent ratings that assess how a company’s behavior and policies impact the environment, its social impact and corporate governance. Forbes describes what independent evaluators are looking for in those three areas:

  • Environment: What kind of impact does a company have on the environment? This can include a company’s carbon footprint, toxic chemicals involved in its manufacturing processes and sustainability efforts.
  • Social: How does the company improve its social impact, both within the company and in the broader community? Social factors include everything from LGBTQ+ equality, racial diversity in both the executive suite and staff overall, and inclusion programs and hiring practices. It even looks at how a company advocates for social good in the wider world.
  • Governance: How does the company’s board and management drive positive change? Governance includes everything from issues surrounding executives pay to diversity in leadership as well as how well that leadership responds to and interacts with shareholders.

Earlier this year, Fink wrote a public letter to CEOs articulating why he believes they should adhere to ESG practices.

“As stewards of our clients’ capital, we ask businesses to demonstrate how they’re going to deliver on their responsibility to shareholders, including through sound environmental, social, and governance practices and policies.” This “stakeholder capitalism,” Fink wrote, is imperative for “delivering long-term, durable returns for shareholders.” 

However, others disagree with Fink’s point of view.

“Hail, Caesar, er, Larry.”

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BlackRock CEO Larry Fink speaks at the Clinton Global Initiative on Monday, Sept. 19, 2022, in New York.

Julia Nikhinson, Associated Press

Shortly after Fink’s letter was released, the Wall Street Journal editorial board published a critique of BlackRock and other asset managers using ESG scores: “Rather than push companies to pursue higher returns, they’re trying to impose their political agenda on corporate America. CEOs and corporate boards can find themselves on the wrong end of a shareholder vote if they refuse to accommodate BlackRock’s policy preferences on climate and ‘stakeholder capitalism.’ Hail, Caesar, er, Larry.” 

Now Patronis and the state of Florida are pulling the state’s money out, even though BlackRock is one of the biggest asset managers in the world. 

“Using our cash, however, to fund BlackRock’s social-engineering project isn’t something Florida ever signed up for,” Patronis said in his statement Thursday. “Florida’s Treasury Division is divesting from BlackRock because they have openly stated they’ve got other goals than producing returns.”