Analysis: Florida governor’s bid for conservative retirement bloc faces hurdles

Florida Governor Ron DeSantis delivers remarks at the Turning Point USA (TPUSA) Student Action Summit (SAS) held at the Tampa Convention Center in Tampa, Florida, USA on 22 July 2022. REUTERS/Octavio Jones/File Photo

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Aug 10 (Reuters) – Florida’s governor wants pension plans in conservative U.S. states to unite to fight shareholder initiatives on issues including climate change and diversity, but the idea may turn out difficult to achieve.

Ron DeSantis’ appeal last month opened a new front in Republican efforts to push back against activist-led environmental, social and governance — or ESG — initiatives at shareholder meetings. Read more

With more than $5.7 trillion in assets under management, state and local defined benefit pension plans in the United States are a powerful shareholder force that can help activists advance or defeat ESG issues when corporate polls by declaring how they will vote and giving impetus to reform efforts, or slowing them down.

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But getting them to vote together as a bloc — as DeSantis wants — will be tricky, given that Republican-controlled state pension systems have voted differently on the same issue and have oversight structures that complicate efforts to influence. their vote. Public funds are also rarely the biggest investors in American companies, which limits their influence.

“It’s a shrewd political move to bring in people who don’t like woke capitalism, but are they going to grow this huge electoral bloc? No,” said Con Hitchcock, a Washington DC attorney who advises the funds. pension.

DeSantis, a Republican who has courted conservatives in an expected presidential bid in 2024, suggested his state of Florida’s retirement system works with those in other Republican-controlled states like Texas.

“What we need to do is get other like-minded states to use all the voting rights of our pension systems as a whole,” DeSantis said at a July 27 press conference.

“We could be a real brake on a lot of the excesses that we’ve seen and probably have enough resources to push back a lot of those things.”

His office has announced its intention to introduce legislation to address ESG factors in investing. But he did not provide details on how that might affect proxy voting, the process by which investors vote on things like director election, executive pay and shareholder proposals during annual meetings.

‘HUGE CHANGE’

DeSantis’ idea could make sense in theory, based on past voting habits. Florida’s retirement investment manager, State Board of Administration (SBA) and Teacher Retirement System of Texas — two of the largest Republican-controlled state pension funds with some $440 billion in combined assets — were less likely to support ESG shareholder resolutions compared to funds in some Democratic-led states, according to Insightia, a corporate governance research arm of software company Diligent.

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But both systems still supported the majority of ESG resolutions this year, according to data from Insightia.

Although most ESG shareholder proposals are non-binding, some have attracted a lot of attention at company annual meetings.

For example, pension funds in Florida and Texas have joined ESG activists in urging Costco Wholesale Corp to set emissions reduction targets and asking McDonald’s Corp (MCD.N) to examine its impact on issues such as racial inequality, according to the revelations.

In other cases, the two pension fund systems voted differently on the same resolution. For example, the SBA supported and Texas opposed a resolution asking Nextera Energy Inc (NEE.N) to publish the gender and race or ethnicity of directors. Read more

The SBA only supported management 42% of the time on “compensation survey” questions related to executive compensation, compared to 87% for the Texas system.

Such disparities show that the funds would need major changes to make DeSantis’ idea work, said Richard Fields, corporate governance consultant for Russell Reynolds Associates.

“A ‘red state’ voting bloc wouldn’t make much of a difference unless each state – including Florida – made huge changes to how it approaches its use of proxy voting responsibilities,” Fields said, referring to Republican-leaning states.

“That would be a huge change.”

‘RIDICULOUS’

The way pension funds are managed is another obstacle.

DeSantis himself is one of three trustees overseeing the SBA, but other governors in Republican-controlled states have less direct influence over their pension systems.

Texas Governor Greg Abbott, for example, directly appoints only three of the nine trustees of the Texas teacher system.

It’s a problem that blue states recognize and that Democrats are also considering coordinating the efforts of pension funds in recent weeks.

“Part of the challenge is that pension funds are run a little differently in different places,” New York City Comptroller Brad Lander, a Democrat who oversees pension funds, said at an event intended to investors this month.

In a high-profile ESG vote at Exxon Mobil Corp. (XOM.N) Last year, pension funds in Florida and Texas actually voted in favor of changes that DeSantis later called “ridiculous.”

In that vote, activist investor Engine No. 1 won three seats on the oil and gas company’s board after fielding candidates – including a former oil refining executive – on a platform to improve financial performance and focus more on clean energy. The move quickly garnered support from public funds in New York and California. Read more

“They elected people to the Exxon board who opposed oil,” DeSantis said last month, mocking the election.

Records show the SBA voted for all four dissenting hedge fund nominees, while the Texas teacher system backed three. A spokesperson for the Texas system declined to comment.

The SBA said the votes reflected factors such as Exxon’s underperformance and a lack of board members with experience in the energy sector. The votes were intended to create “returns for participants in our plan,” an SBA spokeswoman said.

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Editing by Deepa Babington

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