Florida House Bill 989, signed by Governor Ron DeSantis in May, creates a complaint procedure for customers who believe they have been dropped by financial institutions for participating in protected activities. This complaint will trigger an investigation by Florida’s Office of Financial Regulation.

This update expands Florida House Bill 3, a novel law signed last year that prohibits financial institutions from “debanking” customers based on their political beliefs or business affiliations. It also prohibits consideration of ESG (Environmental, Social and Governance) factors in the investment of state assets and the award of government contracts.

State legislatures in Arizona, Georgia, Idaho, Indiana, Iowa, Kentucky, Louisiana and South Dakota are considering similar legislation.

Florida’s law

Types of activities the Florida law considers “unsafe and unsound” and therefore prohibited grounds for termination or denial of business relationships, include:

• “The person’s political opinions, speech, or affiliations” and “religious beliefs.”
• “Any factor if it is not a quantitative, impartial, and risk-based standard, including any such factor related to the person’s business sector.”

The law also prohibits financial institutions establishing a so-called “social credit score” for prospective or current clients based on various ESG factors, a term meant to evoke China’s points-based surveillance and punishment system.

The law notably exempts financial institutions if they make decisions not to deal with customers for religious reasons. 

Treasury response

The Department of the Treasury contends that the text of the Florida law is overly expansive and might hinder banks from performing their obligations to counter illegal practices such as money laundering and proactively exclude potential sponsors of terrorism and organized crime.

The department argues that by forcing banks not to consider the line of work a customer is in, it could expose them to liability based on facilitating illegal activities and sanctions evasion.

Business leaders have long expressed concern that by forcing banks to provide services to customers they have identified as problematic, they expose themselves to unnecessary regulatory, legal, and reputational liability.

Long-term risk

This position aligns with trends in the financial services and investment industries to pursue ESG policies as a matter of mitigating long-term risk. BlackRock’s Larry Fink has been a notable advocate for prudent ESG considerations that focus on sustainability and maintaining long-term market health.

Florida responded to these policies by withdrawing over $2 billion in funds from BlackRock’s management in 2022. Some ESG-critical states have been more than happy to stick with the firm, which has provided dramatic returns.

But that could be changing. In March, the Texas Permanent School Fund pulled $8.5 billion in management from BlackRock to comply with a 2021 law that prohibited boycotting the state’s energy industry – the largest state divestment yet.

The future of ESG is uncertain as a new generation of firebrand conservatives take legal aim at “woke capital,” winding together pervasive economic anxieties with hot-button cultural issues. DeSantis himself is no stranger to this territory: in 2022 he revoked Disney’s self-governing status due to former CEO Bob Chapek’s opposition to Florida’s ban on discussions of gender identity and sexuality in public school classrooms.