A US District Judge in Kansas City, Stephen Bough, has struck down a Missouri state rule that imposed restrictions on investment advisers regarding the incorporation of ESG criteria into their financial advice.
According to Environmental Finance, this rule, introduced in the previous year by the Republican-majority state, required securities firms and professionals to secure a signature from investors before including any “social objective” or other “nonfinancial objectives” in their recommendations or advice. The judge declared the rule unenforceable due to its vagueness and violation of free-speech rights.
This decision arrives amidst an intensifying nationwide debate and legislative pushback against ESG investing by several states governed by Republicans. They argue that such investment strategies should not detract from the primary goal of maximising financial returns for investors.
“Investment advisers should have the freedom to consider all pertinent factors when advising clients, including those that are ESG-related,” Judge Bough stated, stressing that the rule’s requirements were not supported by federal law and thus could not be sustained.
The ruling is seen as a significant setback for efforts by certain state legislatures to limit ESG considerations within investment portfolios, signalling a potential shift in how ESG factors can be legally integrated into financial advisory practices across the United States.
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