ESG Act of 2025

Summary#

This bill, the "Ensuring Sound Guidance Act of 2025" (ESG Act of 2025), would make three main changes. First, it would amend the Investment Advisers Act of 1940 to say a broker, dealer, or investment adviser must determine a customer's best interest using pecuniary (financial) factors, and non-pecuniary factors may be used only if the customer gives written, informed consent. If a customer consents, the firm must disclose the expected financial effect over a customer-selected time period up to three years and then report the actual financial results for that period compared to a comparable index chosen by the customer, including all fees and costs. The bill defines "pecuniary factor" as something a fiduciary reasonably expects to have a material effect on risk or return over an appropriate investment horizon. The Securities and Exchange Commission (SEC) must issue or change rules to implement this within 12 months of enactment, and the rule change would apply to actions taken 12 months after enactment.

Second, the bill would require the SEC to study how issuers of municipal securities disclose climate change and other environmental matters. The SEC must ask for public comment, analyze how often and how such disclosures are made and whether they follow voluntary or mandatory standards, study how investors use these disclosures, and report the results to the Senate Banking Committee and the House Financial Services Committee within one year. The report must include the study results, a discussion of financial risks to investors, whether those risks are adequately disclosed, and recommendations for regulatory or legislative steps.

Third, the bill would require the SEC to study rules that govern solicitation of municipal securities business. The SEC must study how well the covered rules (Municipal Securities Rulemaking Board Rule G-38 and SEC Rule 206(4)-5) prevent payments to elected officials or candidates in exchange for municipal securities business, seek public comment, analyze enforcement and compliance, study effects on small, minority, and women-owned businesses, and report results and recommendations to the same congressional committees within one year.

What it means for you#

• If you are a broker, dealer, or investment adviser: you must base a customer's best interest on financial (pecuniary) factors. You may consider non-financial factors only with the customer's written, informed consent and must make the required disclosures and later comparisons.
• If you are an investor or customer: you can limit advisors to consider only financial factors, or you can give written consent to include non-financial factors and receive required expected and later actual financial-effect disclosures for up to three years.
• If you are involved in municipal securities (issuers, investors, underwriters): the SEC will study environmental disclosures and solicitation rules and will report to Congress within one year. The studies could lead to future regulatory or legislative changes.

Expenses#

No publicly available information on costs, appropriations, or funding for SEC rulemaking or the required studies is included in the bill text.

Proponents' View#

No publicly available information in the bill text about proponents' stated views or arguments.

Opponents' View#

No publicly available information in the bill text about opponents' stated views or arguments.