By Jonathan Stempel (Reuters) -Glass Lewis and ISS, two of the best known proxy advisers, sued Texas on Thursday to block a first-of-its-kind state law limiting their ability to advise shareholders on diversity, environmental and governance practices. In complaints filed in Austin, Texas federal court, Glass Lewis and ISS said Texas’ law was unconstitutional, undermining […]
U.S.
Glass Lewis, ISS sue Texas over law limiting DEI, ESG proxy advice
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By Jonathan Stempel
(Reuters) -Glass Lewis and ISS, two of the best known proxy advisers, sued Texas on Thursday to block a first-of-its-kind state law limiting their ability to advise shareholders on diversity, environmental and governance practices.
In complaints filed in Austin, Texas federal court, Glass Lewis and ISS said Texas’ law was unconstitutional, undermining their First Amendment right to advise clients even if the state didn’t like the advice.
Texas’ Republican Attorney General Ken Paxton, who enforces the state’s laws and is running for U.S. Senate in 2026, is the only defendant. His office did not respond to requests for comment. ISS is short for Institutional Shareholder Services.
Signed by Republican Governor Greg Abbott in June, the Texas law targets “non-financial” advice on diversity, equity and inclusion (DEI) matters, and environmental, social and governance (ESG) matters, including for votes at shareholder meetings.
It requires proxy advisers to conspicuously tell clients that the advice is “not being provided solely in the financial interest of the company’s shareholders,” and to provide financial analyses supporting the advice.
The law takes effect on September 1.
Glass Lewis and ISS said the law would force proxy advisers to broadcast Texas’ preferred viewpoints when their own differed, including on hot-button issues that a Republican state legislator perceived as having a “hard left bent.”
Both advisers said they would likely lose clients and suffer reputational harm if forced to tell clients their advice is bad for them and not in shareholders’ financial interests.
ISS also said the law was designed to protect corporate directors and management, and harm shareholders whose votes are an “important check and balance” against boards.
“Texas’s experiment in anti-capitalism thus serves no one,” ISS said.
Glass Lewis said it has more than 1,300 institutional investor clients. ISS said it provided voting advice in 2024 to about 2,000 clients for around 51,500 shareholder meetings.
Many companies have this year scaled back or ended their support for DEI programs. Republican U.S. President Donald Trump has made eliminating those programs a high priority in his second White House term.
The cases are Glass Lewis & Co v Paxton, U.S. District Court, Western District of Texas, No. 25-01153; and Institutional Shareholder Services Inc v Paxton in the same court, No. 25-01160.
(Reporting by Jonathan Stempel in New York; Editing by Aurora Ellis and Shri Navaratnam)