Missouri is being sued by a top US trade group for financial companies, which accuses the state of “overstepping its boundaries” when it passed a rule designed to limit the impact of environmental, social and governance (ESG) factors on investment decisions.
The new rule the state imposed would require broker-dealers in Missouri to first gain the consent of customers if they intend to buy or sell an investment product based on non-financial objectives, such as social-justice related reasoning, or climate change.
The Securities Industry and Financial Markets Association (SIFMA), which represents asset managers, broker dealers, and banks, claims the rule conflicts with federal securities laws, which require a uniform regulatory environment across the country.
In its lawsuit, SIFMA said, “The rules fail to acknowledge that federal law, regulations, and applicable rules already require financial advisors to act in the best interest of their clients when providing personalized investment advice.”
The lawsuit was filed against Missouri Secretary of State John Ashcroft and Securities Commissioner Douglas Jacoby. It is, so far, among the largest pushbacks against a wave of Republican-led backlashes resisting the use of ESG criteria in investing by such major Wall Street Firms as Blackrock and Wells Fargo.
In a statement, Ashcroft said that the rule does not conflict with federal securities laws, as alleged in the lawsuit.
Ashcroft added, “The rule implements client disclosure standards pertaining to security investments and how investment advisors and broker-dealers disclose investment strategies that propagate values-based agendas that are not purely focused on generating profit for their clients.”
There have been several attacks by states in the United States, launched against asset managers which used ESG factors in investment decisions.
Regardless, many investor funds continue to utilize ESG factors such as climate reduction goals or sustainability metrics when making investment decisions.
According to research from Morningstar direct, over the three months ending June 30th, as $37 billion was withdrawn from investment vehicles overall, funds focused on ESG or sustainability saw $18 billion in inflows of new money.
