Everyone must juggle several financial concerns at once. You’re likely always thinking about budgeting your money, paying your bills and getting out of debt. Retirement investments are another financial factor recently gaining national attention due to ESG policies.

Check out what’s happening in Florida and how ESG laws could affect your financial plans, real estate portfolio or homeownership experience.

What Is ESG?

ESG stands for environmental, social and governance investing. Investment companies may advertise how they take this stance due to changes in consumer demands.

Before ESG investing, retirement fund companies and other investment businesses put their clients’ funds into various mutual funds or brokerage firms based on hard data. Consumers began to realize their wealth-building strategies could align with their personal values. In response, investors redirected funding to impactful, socially responsible or sustainable companies.

ESG investments continue to gain popularity as time goes on. U.S.-based domicile investments in sustainable companies grew from $12 trillion in 2018 to $17.1 trillion in 2020. Values-based investments reflect the rising popularity of consumer-pushed environmental, social and governance change.

Keeping Track of ESG Investments

Investors aren’t just guessing which companies are playing along with consumer demands. They track how companies are sticking to their investment purposes and values through ESG ratings. A national rating system provides evaluation scores for companies based on their latest review of ESG standards.

If a company isn’t internally and externally abiding by its governance codes or making progress on its environmental and social goals, it becomes a higher ESG investment risk. Those companies get lower rating scores, which tell investors to look elsewhere for a higher return guarantee.

ESG investing is rising in popularity for numerous reasons. Research shows 71% of Americans think addressing climate change is essential. Another 62% feel progressive about social issues and 85% want more transparency when companies discuss their business practices. People influence this type of change with their financial power as consumers, so ESG investing interests around 48% of Americans on both sides of the political spectrum.

What Is Florida’s ESG Law?

In May 2023, Florida Governor Ron DeSantis signed House Bill 3 into effect. The legal wording went further than the 19 other states that passed similar legislation limiting local and state government authorities’ investments in ESG-related opportunities with pension funds. The bills also include the fiduciaries, service providers and proxy advisors related to government entities.

House Bill 3 restricts the same entities from weighing ESG considerations before making financial investments. Investors can only consider pecuniary factors, which the bill notes do not include ESG objectives.

5 Ways ESG Laws Impacts Homeowners

It’s important for homeowners to understand how ESG laws affect them. If you live in a state like Florida that enacts similar laws, it could change how your real estate investments perform. These are a few things to know about what ESG policies could mean for your financial life.

1. They Make Green Properties Less Valuable

If residential or commercial real estate investors can’t consider ESG factors before investing, they may feel inclined to skip properties designed with energy-saving or net-zero emission upgrades. If their reports looked like a failure to comply with the Florida statute, they would face penalties and sanctions from the Florida Commissioner of Financial Regulation and Florida’s Attorney General.

Construction companies will likely stick with more traditional building practices without investors paying for eco-friendly properties. Future residential properties will become less eco-friendly, reducing the competition for existing green homes.

Florida homeowners with sustainable house upgrades like solar heating systems or panels may not make the high return on investment (ROI) they hoped when their project began. It’s worth noting if you’re considering future projects or selling a home with green features.

2. They Could Make Some Investments More Attainable

House Bill 3 includes language that requires annual written certification from financial advisors and investment managers. The certificates will prove their investments only consider pecuniary factors. State-wide companies filing individual requirements may create a slow approval system, leading to contract termination between investors and financial institutions.

The assets previously held by those investors will return to the free market. When there are more available assets, they lose their value. Homeowners could put more money into bonds and other opportunities when they fall to a lower market price.

3. They Reduce the Price of Green Construction Materials

With fewer investment companies considering green construction a priority, the reduction in eco-friendly construction means the existing materials will reduce in price. Homeowners interested in sustainable renovations or upgrades could access the materials for a more budget-friendly cost.

Given that green building materials will be worth $524 billion by 2027, getting ahead of rising prices could be advantageous for homeowners. The payoff will depend on the housing market when you decide to sell.

Even with the potential decrease in green real estate investment in Florida, the upgrades could be profitable in the long run. Millennials and Gen Zers want to address climate change more than older generations. They could see green housing in Florida as a direct way to make that happen in their lives.

4. They Might Make More Institutions Achievable

Florida’s recent bill also created a new rule regarding available services. It states that financial institutions cannot deny service to companies that fail to achieve ESG-related goals. If a company doesn’t have a net-zero emissions goal or diversity hiring standards, it won’t disqualify the organization from investing.

This makes it easier for more companies and their employees to benefit from investing in profitable financial institutions. Homeowners will have additional options for their retirement funds, diversifying their portfolios and protecting them against greater risk.

5. They Remove Funding From Environmental Efforts

If state officials, employees and offices can’t invest in environmental efforts as widely, the change will happen at a slower pace. It’s concerning for homeowners in places like Florida that experience severe impacts of climate-change-related weather systems like intensified hurricanes. 

There’s only so much a single homeowner can do to fortify their property. Wider efforts like upgrading sea walls and installing flood-resistant roadways are the local and state government’s responsibility. The damage done while those projects are slowly moving forward or waiting to start could be detrimental to homeowners, especially considering the insurance companies pulling out of the state due to global warming risks to their revenue.

Older roadways and construction that can’t withstand extreme weather could make nearby homes more susceptible to damage. Residential real estate prices could drop if buyers look elsewhere for safer, more updated housing.

Watch for ESG Laws

ESG laws are in place across nearly half the country. If they continue gaining speed, these pros and cons will affect homeowners in those newly enacted states. It’s something to consider as you picture your property’s future and what you want to do with your investments.