Lawmakers Vote On “Social Credit” Score Crackdown

State and local governments in Florida will now be prohibited under a bill passed by the state’s legislature from issuing debt or investing public funds in line with the ESG (environmental, social, and corporate governance) movement.

The bill’s text defines “ESG bonds” as financial products that have as their purpose the intent to finance an ESG project. The bill would make it illegal for governments to issue such bonds. 

Further, the law states that Florida’s public investment officials must make decisions based solely on pecuniary factors. They can’t disregard the interests of the investors and people of Florida for other objectives, including ignoring investment return for the sake of ESG projects.

On Wednesday, after the Florida House of Representatives passed the bill by a vote of 80 to 31, the Florida Senate approved it by a vote of 28 to 12. The bill is waiting for the Republican Governor of Florida, Ron DeSantis’s signature.

Managers of Florida’s public pension funds are prohibited from doing business with rating agencies “whose ESG scores for such issuer will have a direct, negative impact” on the bond ratings of that issuer. State employees are also barred from doing business with financial institutions that terminate customers based on their political beliefs or that use a “social credit score” system that tracks things like a person’s support for or opposition to gun control, the fossil fuel industry, or illegal immigration.

Critics of the ESG movement argue that its investment philosophy compromises or diverts attention away from profitability by including the executives’ preferred political and social reasons, such as lowering carbon emissions and increasing diversity in business leadership. As a result, many companies have restricted consumers’ perspectives: Last year, PayPal said they would stop funding accounts they found to be spreading racist or false information; they later said this policy was released in error.

DeSantis has also pushed for measures to halt ESG investing by the Florida Retirement System Pension Plan.

Republican officials’ worries about the ESG movement have grown over the past year due to the underwhelming returns on investments in the ideology.