Managing the Impact of ESG-Related Proposals

Over the last year or so, lawmakers and state regulators across the country have introduced a series of ESG-related proposals that could have profound ramifications for you and the rest of industry. Not surprisingly, politics has been a driving force, with policymakers in blue states introducing measures promoting ESG investing and those in red states developing rules that combat the trend.

We have always taken a constructive, non-partisan approach to advocacy. It’s what allows us to achieve meaningful results. But we will push back hard against rules and regulations that make it more difficult for our members to do business and limit Americans’ access to financial advice–which is what will happen if the recent proposals, and others yet to be introduced, go into effect.

Unworkable Reporting Requirements

For example, California lawmakers recently passed two pieces of legislation that impose onerous annual reporting requirements related to greenhouse gas emissions. We opposed a similar bill last year, helping to defeat it narrowly. Unfortunately, opposition to the bills weakened this time around after a group of large employers in the state, including Apple, dropped their objections.

Supporters maintain that the bills apply to only a handful of large corporations. In practice, though, they will impact thousands of businesses. For instance, one of the bills requires any enterprise with more than $1 billion in revenue that does any business in the state to report all its greenhouse gas emissions, even those that occur outside of California. The other bill requires reporting of a rather malleable “climate-related financial risk.”

On balance, both are onerous, overly burdensome and would make it more difficult for many of our members to do business in the state. We will continue to engage California lawmakers to help them understand the unintended consequences of their actions.

Needless Administrative Burdens

In another instance, Missouri earlier this year issued a rule requiring advisors to provide notice to and obtain written consent from a client whenever “social” or nonfinancial objectives factor into a recommendation or discretionary decision to buy or sell a security. At the time, we joined a coalition of pro-business groups opposing the regulation.

In engaging regulators in the state, we pointed out that the ensuing administrative burdens could significantly impact the ability of our members to operate efficiently and serve Missouri clients. We also noted that the rule is unnecessary: Advisors under Reg BI are already required to act in their client’s best interest. Despite those objections, Missouri finalized the rule in late July. 

Against this backdrop, Wyoming recently unveiled proposed amendments to state securities regulations that would impose similar disclosure and consent requirements on firms and advisors. Those promise to be equally onerous and unnecessary. We are concerned that more states will follow suit. Please look out for further updates from our state advocacy team.

Make it Easier to Plan and Save

Are ESG investments good or bad? That should be for investors and their advisors to decide among themselves. Indeed, in our view, politicians and regulators should not be unduly favoring or burdening particular vehicles.

We work hard to put politics aside when we advocate for you and the broader industry. Indeed, our focus is on making it easier for tens of thousands our members nationwide help their Main Street clients plan and save for retirement, their children’s education or whatever their financial goals may be.

To that end, we will continue to call on every regulator and politician to consider these things before issuing rules or proposing legislation that impacts the industry.