US judge blocks Missouri rule that limits socially conscious investments By Reuters

(This Aug. 14 story has been corrected to reflect that the Missouri attorney general’s office is not involved in the case, in paragraph 6)

By Daniel Wiessner

(Reuters) – A federal judge in Missouri on Wednesday struck down the Republican-led state’s rule that limits the ability of financial professionals to consider environmental, social and corporate governance factors in providing investment advice.

U.S. District Judge Stephen Bough in Kansas City agreed with a trade group, the Securities Industry and Financial Markets Association, that the 2023 rule was invalid because it imposed requirements on investment banks and broker-dealers that do not exist in federal law.

The rule issued by Missouri Secretary of State Jay Ashcroft would require investment advisers with ESG goals, such as fighting climate change or supporting a social movement, to disclose them to clients and obtain their consent.

Bough said that along with its conflicts with federal law, the Missouri rule violated the free speech rights of investment advisers and was so vague that it could not be enforced under the U.S. Constitution.

State officials “could have embarked on a public information campaign to get their message across,” wrote Bough, an appointee of former Democratic President Barack Obama.

Ashcroft’s office has hired private counsel to defend the rule, and the office of Missouri Attorney General Andrew Bailey, a Republican, is not involved in the case.

SIFMA CEO Kenneth Bentsen said the Missouri rule is unnecessary and would disrupt the uniform nationwide regulation of the securities market guaranteed by federal law, which already requires financial professionals to act in the best interests of their clients.

“This means they cannot put their interests ahead of their clients’ interests when recommending securities,” Bentsen said in a statement.

The Missouri rule is part of a larger push by Republicans in some US states to limit the increasing consideration of ESG factors by businesses and investors, including employee pension plans that collectively invest trillions of dollars.

Former Republican President Donald Trump’s administration passed a rule that prohibits retirement plans from considering any “non-monetary” factors in making investment decisions. The Biden administration eliminated that rule, a move that is being challenged in court.