A U.S. federal court has blocked new regulations in Missouri that aimed to limit the integration of Environmental, Social, and Governance (ESG) factors into investment advice. The regulations, introduced by Missouri Secretary of State Jay Ashcroft in 2023, required financial professionals to obtain written consent from clients before considering nonfinancial or social objectives, including environmental goals, in their investment recommendations. The rule also mandated that clients acknowledge that such advice might not prioritize maximizing financial returns.
The court found the regulations to be unconstitutionally vague, noting that the rule’s broad definition of “nonfinancial objectives” could also include other considerations like tax implications, liquidity, and diversification. District Judge Stephen Bough expressed concern over the vagueness of the rule, given the severe penalties for non-compliance, which included fines, loss of registration, and even criminal charges. The court issued a permanent injunction to prevent the implementation of the law across the country. The decision is part of a broader debate about ESG considerations in financial decisions, and Missouri’s ability to participate in some anti-ESG initiatives. SIFMA, which challenged the law, hailed the decision as a major victory for the national securities market.