Earlier this week, a federal court issued a permanent injunction against a law that restricts financial professionals from integrating environmental, social and governance (ESG) considerations into their investment advice. In their ruling, the judges argued that the law was unconstitutional and vague.
District Judge Stephen Bough, who presided over the case, found that the vagueness of these regulations was especially bothersome given the penalties imposed on those who didn’t comply. These penalties include a civil penalty of $25,000 for every violation along with loss of registration and criminal penalties.
The injunction bans the application, enforcement or implementation of the regulation.
Jay Ashcroft, the secretary of state for Missouri, initiated this law. It requires that securities professionals and companies obtain written consent from clients before incorporating a social or nonfinancial objective, including environmental or social goals, into their investment advice or securities recommendations. The consent to be obtained includes language that acknowledges the advice will result in recommendations and investments that aren’t primarily centered on maximizing financial returns.
These regulations are part of an active anti-ESG movement led by GOP legislators, including some in Missouri, which has been part of several anti-ESG measures. In 2022, the state’s pension fund announced that it would be divesting approximately $500 million dollars from BlackRock. In its statement, the fund based its decision on BlackRock prioritizing ESG initiatives over shareholder returns.
This isn’t the first time BlackRock, which is the biggest investment management company globally, has found itself at the center of these issues. That same year, BlackRock was accused of acting with mixed motives and following a social objective not aligned with its financial return goals.
Last year, the Missouri State Employees’ Retirement System joined an alliance pioneered by Governor Ron DeSantis of Florida focused on protecting individuals from the ESG movement via actions such as prohibiting the use of ESG considerations in local and state pension funds. This regulation was contested in court by the Securities Industry and Financial Markets Association (SIFMA), noting that the regulation could also include other objectives often considered by professionals in the financial sector, such as diversification, liquidity and tax considerations, among others.
Kenneth E. Bentsen Jr., SIFMA CEO and president, issued a statement following the court’s decision. He asserted that the ruling marked a huge win for the country as well as the national securities market system. He added that financial professionals already offered investment recommendations and advice in their clients’ best interests. This, he noted, meant that they couldn’t put their interests before those of their clients, especially when they were talking investments.
Companies such as Aston Bay Holdings Ltd. (TSX.V: BAY) (OTCQB: ATBHF) headquartered in jurisdictions across the border may be watching these developments in the United States and wondering how state officials can even think of taking steps to roll back the spread of ESG, especially given the numerous benefits that have been documented to accrue from the implementation of these principles.
NOTE TO INVESTORS: The latest news and updates relating to Aston Bay Holdings Ltd. (TSX.V: BAY) (OTCQB: ATBHF) are available in the company’s newsroom at https://ibn.fm/ATBHF
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