ESG Act of 2025 Ensuring Sound Guidance Act of 2025
Impact
The bill directs the Securities and Exchange Commission (SEC) to conduct significant studies on climate change disclosures related to municipal securities. It seeks to assess the extent and consistency of environmental disclosures made by issuers and aims to understand the financial risks associated with investments in municipal securities. The findings will inform the SEC on whether these risks are sufficiently disclosed and help to shape future regulatory or legislative initiatives regarding environmental factors in investment decisions.
Summary
House Bill 2358, titled the 'Ensuring Sound Guidance Act of 2025', amends the Investment Advisers Act of 1940 by introducing requirements focusing on how investment advisers consider pecuniary and non-pecuniary factors in their decisions. A key provision mandates that the 'best interest' of customers must primarily be based on pecuniary factors, whereby non-pecuniary factors can only be considered with informed consent from the customer. This aspect aims to reinforce fiduciary responsibilities by ensuring that clients' financial interests are prioritized in investment decisions.
Contention
A notable point of contention within HB2358 lies in the balance between maintaining strong fiduciary duties and allowing for flexibility in considering non-pecuniary factors. Critics may argue that strict adherence to pecuniary factors could limit advisers' ability to incorporate values-based investment choices, especially important for clients interested in socially responsible investing. Additionally, the focus on mandatory disclosures related to climate change could generate debate regarding the adequacy of existing disclosure standards and the potential impact on investment strategies in the municipal bond market.
Requires fiduciaries for public retirement systems to make investment decisions based solely on financial factors. (8/1/24) (OR SEE ACTUARIAL NOTE APV)