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Florida HB 3: Protecting Return on Investment

Published in Blog on November 17, 2023 by Stanley E Gilewicz

“The Social Responsibility of Business is to Increase Its Profits” Milton Friedman

Over 50 years ago famed economist Milton Friedman wrote his essay defining the obligation of business. This position has been subject to debate since its publication but never as fiercely as the present day. Should businesses place highest priority on profitability and maximizing return on investment (ROI)? Or should they “balance” environmental, social and governance (ESG) concerns as well?

Friedman’s Method

Dick and Jane are husband and wife. Dick is adept at marketing. Jane is a whiz at creating new confections. Their family and friends urge them to start a business selling a line of cookies. They incorporate and call their new business “Better Than Grandma’s” (BTG). Jane makes sample batches for Dick to present to local market stores. BTG cookies are an instant hit and overwhelm Jane’s ability to meet local demand. They carefully reinvest 100% of profits in equipment and inventory.


Dick and Jane go to their local bank to apply for both a 2nd mortgage and line of credit to address building a baking facility and maintaining cash flow to keep the cookies coming. They have realized that bakery staff will be needed and have brought new employees on board. One hundred percent of profits from BTG are being used to pay overhead, employees, repay loans and improve their financial statements. The judicious use of profits enables BTG to keep growing, keep attracting new workers and start exploring new geographical markets.

The profitability and quality of cookies attracts the eye of outside investment firms who see solid management, high profitability and a desirable product line. Dick and Jane are urged to take the company public and remain as executives. The investors do their due diligence, decide that ROI looks promising and years after BTG sold its first cookies to the local market, the company is now traded on Wall Street and employs hundreds of people in well paying jobs. Quarterly profits are now paid to shareholders and shares are offered to employees through 401K investing.

The Environmental, Social and Governance (ESG) Approach to Profits

A different Dick and Jane believe in ESG. Dick is adept at social justice media. Jane is a whiz at creating low carbon footprint confections. Their family and friends urge them to start a business selling a line of ESG cookies. They incorporate and call their new business “Rainbow Sweeties” (RS). RS vows to donate 10% of gross profits to ESG causes. Jane makes sample batches in solar powered electric ovens for Dick to present to local market stores. RS cookies are packaged in ESG “acceptable” materials and sport "socially inclusive" logos. Acceptance from local markets is slow due to fear of consumer backlash towards ESG.


Dick and Jane go to their local bank to apply for both a 2nd mortgage and line of credit to address mounting debt in the face of flat sales figures and rising inflation. They have realized that expansion will require new facilities and employees but after paying 10% of gross profits to ESG causes, remaining profits from RS barely cover overhead, current employees and their existing home mortgage. The bank views their financial statement as a poor ROI opportunity and they are turned down. Will RS survive?

Rainbow Sweeties never gets the chance to become a publicly traded company because it was never able to sustain sufficient profitability to attract investors.

Should Investors Expect Maximum Return on Investment (ROI)?

Maximum ROI would seem essential to the average working American, many of whom live paycheck to paycheck. We simply cannot afford to dilute ROI.

Businesses that operate on the concept that profitability is ok “only if” certain ESG criteria are met do a disservice to their shareholders. If this position is clearly stated and offered as optional to investors then it, at least, becomes an individual choice.

Institutional investors (states, retirement accounts, mutual funds, etc.) must know which type of return is being offered: maximum ROI or “only if” ESG. This needs to be communicated to their membership so each individual can tailor their investments. Maximum ROI should be the expectation. ESG should be optional only.

Florida Sides with Maximum ROI

Florida’s governor signed HB 3 “Government and Corporate Activism” on May 2, 2023. The essence of the bill restricts consideration of ESG factors in investment decisions. One month later the CEO of Blackrock was complaining that not only was ESG getting bad press but Florida had pulled all state investments ($2 Billion) out of the company. It has only gotten worse for ESG. Twenty-six states have now challenged a federal ruling allowing employee retirement plans to consider ESG investments.

What Does HB 3 Say?

Pecuniary factors:
Are those that are expected to have a material effect on the risk and returns of an investment based on appropriate investment horizons consistent with applicable investment objectives and funding policy. A pecuniary factor does not include “the consideration of the furtherance of any social, political, or ideological interests.”

Retirement assets:
When investing Florida retirement system assets (the fourth largest state retirement system in the United States, representing about $180 billion in assets), only pecuniary factors may be considered.

Proxy voting and reporting:
HB 3 requires shareholder rights like proxy voting to be exercised only on the basis of pecuniary factors. HB 3 also requires retirement systems and plans to offer annual reporting to the state on their governance policies, voting decisions and adherence to fiduciary standards.

Public depositories:
Bank or savings institutions able to accept Florida funds for deposit are restricted to entities that do not deny or cancel services to a person on the basis of political opinions, religious beliefs, any factor related to the person’s business sector, or failure to meet environmental or governance standards.

Certification of pecuniary compliance:
HB 3 requires an annual investment adviser or manager certification that all investment decisions made on behalf of state trust funds and the State Board of Administration are made solely on the basis of pecuniary factors.

Local government compliance:
HB 3 prohibits the use of ESG investing in all investment decisions at the local level.

Government contracting:
State agencies and local governments are prohibited from requesting documentation of a vendor’s social, political or ideological interests.

ESG bonds:
Issuance of state or municipal ESG bonds or use of third party ESG verification services is not allowed. 

COS Encourages Legislative Involvement

COS believes that the fruits of honest labor belong to the individual and must be safeguarded. HB 3 is a major step towards ensuring Floridians are guaranteed maximum ROI on their hard earned income and savings.

Thank your legislators if they supported the bill. If the legislator was opposed, start a respectful conversation and listen to his/her objections. See if common ground is possible but remember always: It is your money that is at stake.

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