U.S. District Judge Stephen Bough in Kansas City ruled that a 2023 Missouri rule, issued by Secretary of State Jay Ashcroft, was invalid because it imposed requirements on investment banks and broker-dealers that do not exist under federal law. The rule required investment advisers who consider ESG objectives, such as combating climate change or supporting social movements, to disclose these considerations to customers and obtain their consent. Judge Bough, an appointee of former President Barack Obama, found that Missouri’s rule not only conflicted with federal law but also violated the free-speech rights of investment advisers and was too vague to be enforced under the U.S. Constitution.
He noted that state officials could have opted for a public-information campaign to promote their message instead. The Securities Industry and Financial Markets Association (SIFMA), a trade group, challenged the rule, with SIFMA CEO Kenneth Bentsen stating that the rule was unnecessary and would disrupt the uniform nationwide regulation of the securities market, which already requires financial professionals to act in the best interests of their clients. The Missouri Attorney General’s office, led by Andrew Bailey, a Republican, is not involved in the case; instead, Ashcroft’s office hired private counsel for the defense. This ruling is part of a broader effort by Republicans in some U.S. states to limit the growing consideration of ESG factors by businesses and investors. This includes challenges to employee retirement plans that invest trillions of dollars, a movement that contrasts with actions taken by the Biden administration, which eliminated a Trump-era rule barring retirement plans from considering non-pecuniary factors in investment decisions—a move that is also being challenged in court.