Judge Blocks Texas Law Restricting DEI and ESG Proxy Voting Advice

Success for Glass Lewis and ISS: Judge blocks Texas law restricting DEI and ESG proxy voting advice  

On Friday, Judge Alan Albright of the U.S. Western District Court of Texas granted ISS and Glass Lewis initial safety from enforcement action by the Texas Attorney General on Texas’ new law SB 2337.  

What does the law require? SB 2337 went into effect on September 1 and restricts proxy advisors from using “non-financial” advice, such as DEI and ESG insights, in their reports to shareholders. The law requires any entity that gives such proxy advice to make significant disclosures, including publishing on its website, informing clients, and providing financial analyses showing that any advice on DEI and ESG matters is not solely in the best financial interest of the client.  

First Amendment violation: In the suit filed by Glass Lewis and ISS, the court halted enforcement of the law as it violates the First Amendment of the Constitution, forcing these proxy advisors to advise clients as Texas wishes.  

Giving proxy advice, take heed: Nevertheless, the court’s temporary restraint only protects Glass Lewis and ISS from SB 2337. All other entities that provide proxy advice considering DEI and ESG factors for companies incorporated in Texas will still need to follow the disclosure policies outlined in the law and are subject to enforcement action.

What We Are Watching This Week

Congress is back in session this week with many plans (and hurdles) ahead.

Committee Hearing: The House Financial Services Committee is expected to announce bills to be considered during a hearing next week on September 10 titled “Proxy Power and Proposal Abuse: Reforming Rule 14-a8 to Protect Shareholder Value.” We do not expect the bills they consider to be friendly to sustainable investors.