Judge Halts Texas Law Limiting DEI and ESG Investment Advice

Highlights

• Texas law restricting DEI and ESG advice blocked by federal judge.
• Glass Lewis and ISS argue law violates First Amendment rights.
• The ruling impacts over 3,000 institutional investors relying on proxy advice.

A federal judge in Texas has temporarily stopped the state from enforcing a new law that limits how proxy advisory firms can provide guidance on diversity, equity, and inclusion (DEI) and environmental, social, and governance (ESG) issues.

The law directly targeted Glass Lewis and Institutional Shareholder Services (ISS), two of the most widely used firms that advise institutional investors on how to vote during company shareholder meetings.

The law, known as Senate Bill 2237, was signed in June by Governor Greg Abbott.

It required proxy advisers to inform their clients that DEI or ESG advice might not focus solely on financial interests. In addition, they would have been forced to provide a financial analysis to justify such recommendations.

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However, Glass Lewis and ISS argued that this law violated their First Amendment rights, as it pressured them to present Texas’ political stance rather than their own independent advice.

Judge Alan Albright issued injunctions against the law, agreeing with Glass Lewis and ISS that they had a strong case. Meanwhile, Attorney General Ken Paxton defended the legislation, saying it only required neutral, factual disclosures and did not force the advisers to take sides.

Nevertheless, both Glass Lewis and ISS welcomed the court’s ruling, reaffirming their commitment to offering independent, fact-based analysis to investors.

This case shows the broader debate in the U.S. over corporate DEI and ESG policies. Many companies have scaled back DEI programmes recently, and Donald Trump has made rolling back such initiatives part of his political platform.

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With Glass Lewis serving more than 1,300 clients and ISS advising about 2,000 clients, the ruling has wide implications for investors and companies that rely on their guidance.

Ends/

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Source: Reuters