ESG Act of 2025
Key claim: The ESG Act of 2025 would require brokers, dealers, and investment advisers to base best-interest determinations on pecuniary factors unless the customer directs otherwise, effectively limiting ESG considerations in investment advice absent explicit client instruction.
Abstract
(HR2358 · 119th Congress) Ensuring Sound Guidance Act of 2025 or the ESG Act of 2025 This bill further defines the best interest of a customer for purposes of the standard of conduct for all brokers, dealers, and investment advisers. Currently, these professionals must act in the best interest of the customer without regard to the financial or other interests of the professional providing the advice. The bill adds that the best interest standard must be based on pecuniary factors (i.e., a factor that a fiduciary determines will have a material effect on an investment’s performance) unless the customer otherwise directs. In addition, the Securities and Exchange Commission must report on (1) municipal bond disclosures regarding climate change and environmental matters, and (2) the effectiveness of specified rules in preventing the payment of government officials or candidates in exchange for government business in connection with the sale or offer of municipal securities. Latest action (2025-03-26): Referred to the House Committee on Financial Services.
Why this matters
Climate and environmental factors reach capital markets through two channels: disclosure by issuers and consideration by investment advisers. The ESG Act would narrow the second channel by making pecuniary factors the default basis for best-interest determinations, complementing parallel efforts to roll back SEC climate disclosure rules and reducing the pathway by which climate risk shapes retail investment flows absent explicit client direction.