On Friday, a federal appeals court rejected a lawsuit by four Republican-led states trying to stop a US Securities and Exchange Commission rule. This rule mandates that investment funds must disclose how they vote on environmental, social, and governance (ESG) issues.
A three-judge panel from the 5th US Circuit Court of Appeals in New Orleans decided that Texas, Louisiana, Utah, and West Virginia did not have the legal right (standing) to challenge the SEC rule.
The court ruled that these states did not demonstrate how they or their citizens would be directly harmed by the rule, so their challenge was dismissed.
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The three-judge panel explained that the states argued the SEC rule would lead to higher compliance costs for investment advisors, which could ultimately affect fund investors, including the states themselves.
However, the panel deemed these potential harms as speculative because the states did not demonstrate that the increased costs would definitely be passed on to investors.
Additionally, the panel stated that the states failed to show how the SEC rule would directly harm industries important to them, such as the oil and gas sector in Texas.
Therefore, based on these reasons, the panel concluded that the states did not have sufficient grounds (standing) to challenge the SEC rule.