A recent ruling from a Missouri judge has put the brakes on an investment rule aimed at addressing what some call “woke politics” in finance.
On Wednesday, U.S. District Judge Stephen R. Bough declared the state regulation proposed by Republican Secretary of State Jay Ashcroft unconstitutional. Ashcroft’s initiative sought to spotlight financial firms he believed prioritized social agendas over profitability.
The court found that the regulations infringed on the free speech rights of financial institutions. Kara Corches, the interim president and CEO of the Missouri Chamber of Commerce and Industry, noted that these rules could have unduly burdened both small and large investment firms operating in Missouri, as reported by the Associated Press (AP).
In new rules put into effect in 2023, Ashcroft mandated that investment professionals secure written consent from clients before considering any social or non-financial factors in their investment decisions.
After announcing his candidacy for governor, Ashcroft frequently discussed his intention to push businesses and financial institutions to disclose when they engaged in ESG (environmental, social, and governance) investments that he believed compromised returns.
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Despite his efforts, Ashcroft finished third in the August 6 Republican primary. He claimed his objective was to raise awareness about how some firms integrate ESG criteria into their operations.
Judge Bough’s ruling emphasized that the Missouri regulations contradicted federal laws governing investment practices and were overly vague. He expressed that if the aim was to combat fraud, the regulation could have been designed more precisely.
In response, Ashcroft indicated that his office is considering an appeal, labeling the court’s decision as both legally inadequate and morally misguided, suggesting that it jeopardizes Missouri investors.
The Securities Industry and Financial Markets Association (SIFMA) had previously opposed Ashcroft’s proposed regulations, which ultimately led to their court defeat. SIFMA’s President and CEO Kenneth E. Bentsen Jr. commented that financial professionals are already obligated under federal law to act in their clients’ best interests, deeming Missouri’s rules unnecessary and confusing.