HB-3: An Overview of ESG Factors Relating to Public Funds Investment and Financial Industry Impacts

HB-3: An Overview of ESG Factors Relating to Public Funds Investment and Financial Industry ImpactsOn May 2, 2023, Florida Governor Ron DeSantis signed into law HB 3, also known as “An Act Relating to Government and Corporate Activism (the “Act”).  The Act amends Florida Statute provisions relating to (i) deposits and investments of state money, (ii) state retirement systems and plans, (iii) state public funds, (iv) state bonds, (v) public deposits, (vi) government contracts, (vii) financial institutions, (viii) consumer finance companies, (viii) money services businesses, and (ix) deceptive and unfair trade practices.

Below is a summary of the provisions of the Act and its impact on the investment of public funds and the new legislative provisions affecting financial institutions in Florida. 

Investment Decisions

The Act prohibits applicable parties from taking into consideration “non-pecuniary” factors, including environmental, social and governance (“ESG”) factors, when making investment decisions. Such investment decisions must be based solely on “pecuniary factors.” A “pecuniary factor” is defined in the Act as “a factor that… is expected to have a material effect on the risk or returns of an investment based on appropriate investment horizons consistent with applicable investment objectives and funding policy. The term does not include the consideration of the furtherance of any social, political, or ideological interests.” This requirement applies to the investment of public funds made by (i) the Chief Financial Officer, or other party authorized to invest on his or her behalf, (ii) a citizen support organization or a direct support organization on behalf of an agency, (iii) the plan administrator, named fiduciary, board, or board of trustees of the retirement system or plans, and (iv) the State Board Administration of the System Trust Fund or other trust funds administered thereby.

Public Finance

The Act also addresses the issuance of ESG bonds and prohibits any state, local government or political subdivision granted the power to issue bonds from issuing them. An ESG bond is defined as “any bonds that have been designated or labeled as bonds that will be used to finance a project with an ESG purpose, including, but not limited to, green bonds, Certified Climate Bonds, GreenStar designated bonds, and other environmental bonds marketed as promoting a generalized or global environmental objective; social bonds marketed as promoting a social objective; and sustainability bonds and sustainable development goal bonds marketed as promoting both environmental and social objectives. The term includes those bonds self-designated by the issuer as ESG-labeled bonds and those designated as ESG-labeled bonds by a third-party verifier.”

Not only is the issuance of ESG bonds prohibited, but retaining a third-party verifier to obtain an ESG label on bonds is also prohibited.  A third-party verifier means “any entity that contracts with an issuer to conduct an external review and independent assessment of proposed ESG bonds to ensure that such bonds may be designated or labeled as ESG bonds or will be used to finance a project that will comply with applicable ESG Standards.” Furthermore, government issuers cannot enter into a contract with any rating agency whose ESG scores for such issuer will have a direct, negative impact on the issuer’s bond ratings.

Public Deposits

Section 280.03(1)(b), Florida Statutes, provides that “public deposits shall be made in a qualified public depository unless exempted by law.” The Act amended the definition of “qualified public depository” to mean “a bank, savings bank, or savings association that makes determinations about the provision of services or the denial of services based on an analysis of risk factors unique to each customer or member.” The Act “does not restrict a qualified public depository that claims a religious purpose from making such determinations based on the religious beliefs, religious exercise, or religious affiliations of a customer or member.”  A qualified public depository “does not engage in the unsafe and unsound practice of denying or canceling its services to a person, or otherwise discriminating against a person in making available such services or in the terms or conditions of such services, on the basis of:

(a) the person’s political opinions, speech, or affiliations;

(b) the person’s religious beliefs, religious exercise, or religious affiliations (except as provided above);

(c) any factor if it is not a quantitative, impartial, and risk-based standard, including any such factor related to the person’s business sector; or

(d) the use of any rating, scoring, analysis, tabulation, or action that considers a social credit score based on factors including, but not limited to,

(i)        the person’s political opinions, speech, or affiliations;

(ii)       the person’s religious beliefs, religious exercise, or religious affiliations;

(iii)      the person’s lawful ownership of a firearm;

(iv)      the person’s engagement in the lawful manufacture, distribution, sale, purchase, or use of firearms or ammunition;

(v)       the person’s engagement in the exploration, production, utilization, transportation, sale, or manufacture of fossil fuel-based energy, timber, mining, or agriculture;

(vi)      the person’s support of the state or federal government in combatting illegal immigration, drug trafficking, or human trafficking;

(vii)     the person’s engagement with, facilitation of, employment by, support of, business relationship with, representation of, or advocacy for any person described in the foregoing;

(viii) the person’s failure to meet or commit to meet, or expected failure to meet, any of the following as long as such person is in compliance with applicable state or federal law:           

(A)       environmental standards, including emissions standards, benchmarks, requirements, or disclosures;

(B)       social governance standards, benchmarks, or requirements, including, but not limited to, environmental or social justice;

(C)       corporate board or company employment composition standards, benchmarks, requirements, or disclosures based on characteristics protected under the Florida Civil Rights Act of 1992; or

(D) policies or procedures requiring or encouraging employee participation in social justice programming, including, but not limited to, diversity, equity, or inclusion training.

Qualified Public Depository

Beginning on July 1, 2023, the following entities are required to make an attestation that it is in compliance with the requirements listed above:

(1)       A bank, savings bank, or savings association, upon application or reapplication for designation as a qualified public depository;

(2)       A qualified public depository, upon filing the report required by Section 280.16(1)(d), Florida Statutes;

(3)       If an application or reapplication for designation as a qualified public depository is pending on July 1, 2023, the bank, savings bank, or savings association must file the attestation required above before being designated or re-designated a qualified public depository.

Consumer Finance, Money Services, and Financial Institutions

New sections under Chapter 516 (Consumer Finance), Chapter 560 (Money Services), and Chapter 655 (Financial Institutions) were created to require attestations similar to those now required of qualified public depositories as described above. The entities operating under the purview of such chapters are required to make annual attestations beginning on July 1, 2023. Failure to provide such attestation could result in sanctions and penalties as provided under applicable laws.  A refusal to provide such attestation will also constitute a violation of the Florida Deceptive and Unfair Trade Practices Act under Part II of Chapter 501, Florida Statutes.


Lastly, beginning on July 1, 2023, school districts, Florida college system institutions, and state universities may not (1) request documentation of or consider a vendor’s social, political, or ideological interests; or (2) give preference to a vendor based on the vendor’s social, political, or ideological interests. In addition, any solicitation for purchases and leases must include a provision notifying vendors of these provisions.

  • Tala A. Woods

    Tala A. Woods is a Partner in the Jacksonville office of Shutts & Bowen LLP, where she is a member of the Corporate Practice Group.

    Tala focuses her practice on public finance and corporate law. She has experience in a variety of public ...

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