H.R. 2358 — ESG Act of 2025

This section amends the Investment Advisers Act of 1940 to require brokers, dealers, and investment advisers, when determining a customer's best interest, to base that determination on pecuniary factors (i.e., factors a fiduciary prudently determines will have a material effect on investment risk or return based on appropriate horizons), which may not be subordinated to or limited by non-pecuniary factors absent the customer's informed written consent. If consent is provided, the firm must (1) disclose the expected pecuniary effects over a customer-selected period of up to three years and (2) at the end of that period, disclose the actual pecuniary effects compared to a customer-selected reasonably comparable index or basket of securities, including all fees, costs, and expenses incurred for considering non-pecuniary factors. The Securities and Exchange Commission must issue implementing rules within 12 months of enactment, with the amendment applying to firm actions beginning 12 months after enactment.

This section directs the Securities and Exchange Commission (SEC) to conduct a study on the extent to which issuers of municipal securities make disclosures to investors regarding climate change and other environmental matters, including by soliciting public comment. The study must analyze (1) the frequency of such disclosures, (2) their alignment with disclosures made in other contexts, (3) any voluntary or mandatory disclosure standards used, (4) the degree to which investors consider such disclosures in investment decisions, and (5) other relevant information as determined by the SEC. Not later than one year after enactment, the SEC must submit a report to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services that includes the study results, a discussion of financial risks to investors from municipal securities investments and whether such risks are adequately disclosed, and recommended regulatory or legislative steps.

This section directs the Securities and Exchange Commission (SEC) to conduct a study, with public comment, on the effectiveness of covered rules—Municipal Securities Rulemaking Board (MSRB) Rule G-38 and SEC Rule 206(4)-5 (17 C.F.R. 275.206(4)-5)—in preventing payments to elected officials or candidates for elected office in exchange for municipal securities business. The study must assess each rule's intended effects and unintended adverse effects, enforcement frequency and scope, compliance policies and procedures among covered persons and any resulting disadvantages in political participation relative to other government business seekers, impacts of other state and federal laws, and effects on persons affiliated with small, minority-owned, and women-owned businesses. Not later than one year after enactment, the SEC must submit a report with study results and recommended regulatory or legislative actions to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services.