The ESG Act of 2025 (H.R. 2358), introduced in the 119th Congress, would: (1) change how the best-interest standard is applied by investment advisers, brokers, and dealers under the Investment Advisers Act of 1940 by requiring that client best interests be based on pecuniary (financial) factors unless the client expressly consents in writing to include non-pecuniary factors (e.g., ESG considerations); and (2) mandate two SEC-initiated studies—one on climate change and other environmental disclosures in the municipal bond market, and another on the solicitation of municipal securities business, including the rules designed to prevent improper payments to elected officials. The bill requires SEC rulemaking to implement the pecuniary-factor standard within 12 months and imposes reporting deadlines for the studies, with public comment opportunities. In short, the bill prioritizes financial considerations in investment advice, adds transparency requirements if non-pecuniary factors are included, and commissions targeted investigations into municipal bond disclosures and the effectiveness of rules restricting political contributions or solicitations tied to municipal securities business.
Key Points
- 1Best-interest standard limited to pecuniary factors unless written, informed consent is obtained to consider non-pecuniary factors; if consent is given, advisers must disclose expected pecuniary effects over up to a three-year period and later disclose actual effects against a comparable index, including all fees and costs.
- 2A definition of “pecuniary factor” is provided as a factor a fiduciary prudently determines will materially affect risk or return based on appropriate investment horizons.
- 3SEC must, within 12 months of enactment, revise or issue rules to implement the pecuniary-factor standard; the provision applies to actions taken beginning 12 months after enactment.
- 4Section 3 requires the SEC to study climate-change and other environmental disclosures in the municipal bond market, solicit public comment, and report within 1 year with findings on disclosure frequency, alignment with other contexts, standards, investor consideration, and regulatory/legislative recommendations.
- 5Section 4 requires the SEC to study the effectiveness of “covered rules” (Rule G-38 of MSRB and Rule 206(4)-5) governing solicitation of municipal securities business, including enforcement, compliance policies, potential political-process disadvantages, impact on small/multistartup (minority/women-owned) businesses, and interactions with other laws; a report with recommendations is due within 1 year.