Missouri Judge Overturns State's ESG Rule for Financial Advisors

A federal judge in Missouri struck down the state's rule that restricted financial advisors from considering environmental, social, and corporate governance (ESG) factors. The judge deemed the rule invalid for conflicting with federal law and violating free speech rights. The rule was part of a Republican effort to limit ESG considerations in investments.

A federal judge in Missouri struck down on Wednesday the Republican-led state's rule limiting the ability of financial professionals to consider environmental, social, and corporate governance (ESG) factors in giving investment advice.

Judge Stephen Bough of Kansas City ruled in favor of the Securities Industry and Financial Markets Association, asserting the 2023 rule was invalid as it imposed requirements not supported by federal law. Issued by Missouri Secretary of State Jay Ashcroft, the rule mandated investment advisers disclose any ESG considerations to customers and obtain their consent.

Bough cited conflicts with federal law and violations of free-speech rights, deeming Missouri's rule too vague to enforce. He suggested state officials could have opted for a public-information campaign to promote their message. Missouri Attorney General Andrew Bailey's office, defending the rule, did not respond to requests for comment.

SIFMA CEO Kenneth Bentsen criticized Missouri's rule as unnecessary, arguing it would disrupt the nationwide regulation of the securities market, which requires financial professionals to act in clients' best interests. The rule is part of a wider Republican push to limit ESG considerations, reflecting ongoing debates since the Trump and Biden administrations' differing policies.

(With inputs from agencies.)