District Court Rules Missouri Can Not Impose Anti-ESG Disclosure Requirements

The US District Court for the Western District of Missouri ruled that two state regulations imposing certain disclosure and consent requirements on financial professionals were preempted by federal law and violated the First Amendment.

The Missouri regulations required that "securities firms and professionals obtain a signature from Missouri investors on consent forms before incorporating a 'social objective' or other 'nonfinancial objective' into their securities recommendations or investment advice." The Securities Industry and Financial Markets Association ("SIFMA"), as plaintiff, contended that the regulations violated the First Amendment by compelling financial professionals to make misleading statements about the effects of incorporating nonfinancial objectives into investment decisions. SIFMA further argued that the rules were preempted by the National Securities Markets Improvement Act of 1996 ("NSMIA") and ERISA.

The Court ruled that the Missouri regulations (i) imposed recordkeeping requirements beyond federal law, directly conflicting with NSMIA; (ii) were unconstitutionally vague and infringed on First Amendment rights by requiring professionals to obtain consents using language that was both inaccurate and controversial; and (iii) imposed undue burdens on financial professionals. 

In the Order, the Court (i) declared the Missouri regulations preempted and unconstitutional; (ii) enjoined state officials from enforcing these rules statewide; and (iii) issued a permanent injunction prohibiting further action under these provisions. In a subsequent Final Order, the Court adopted awarded $500,000 in attorneys' fees.