Securities Regulation Daily Wrap Up, ESG NEWS—W.D. Tex.: Glass Lewis sues Texas over proxy advice restrictions, (Jul 25, 2025)

By Anne Sherry, J.D.

The proxy advisory firm alleges that a recently enacted law violates the First Amendment.

Proxy advisory firm Glass Lewis is seeking an injunction barring the Texas Attorney General from enforcing a new state law. The challenged law, S.B. 2337, takes aim at ESG by requiring proxy advisors to disclose when their recommendations are not solely in the financial interests of shareholders. According to Glass Lewis, the statute discriminates based on viewpoint, infringes on Glass Lewis’s freedom of association, and chills speech through terms that are unconstitutionally vague (Glass, Lewis & Co., LLC v. Paxton, No. 25-cv-1153 (W.D. Tex. filed July 24, 2025)).

Legal landscape. Glass Lewis opposed the bill when it was introduced. The firm disputed the premise that ESG factors don’t align with financial returns, citing the Deepwater Horizon oil spill’s environmental and monetary costs. And it said that there was no point in overwhelming its clients with the false suggestion that its recommendations are not in their financial interest. The bill succeeded anyway and was signed into law on June 20, 2025.

Two weeks later, the D.C. Circuit rejected the SEC’s attempt to regulate proxy advisors under the Exchange Act. In a client alert, Paul Hastings attorneys observed that this ruling highlights the significance of state laws—and they presaged that laws like Texas’s could be challenged on First Amendment grounds.

Viewpoint discrimination. In its complaint, Glass Lewis said that the law compels it “to make disparaging disclosures and notices about its own services to its clients.” In doing so, it discriminates based on viewpoint: advice that disparages the relevance of governance and diversity does not trigger disclosure, nor does advice favoring company management. But when Glass Lewis’s advice reflects the relevance of ESG or DEI factors to performance or advises against the views of management or the board, it must “provide a government-drafted script” (quotingNat’l Inst. of Fam. & Life Advocs. v. Becerra, 585 U.S. 755, 766 (2018)).

“Texas is entitled to its view of ESG,” Glass Lewis acknowledged. “It may not, however, compel proxy advisors to parrot that view, nor regulate their speech because Texas disagrees with their views.”

Furthermore, because the law engages in content-based discrimination, it is subject to strict scrutiny, which it fails. The government’s stated purpose to “prevent fraudulent or deceptive acts and practices” appears to be pretext, and the under-inclusiveness of the law raises doubts about the sincerity of this purpose. Even if the state has a genuine interest in preventing fraud, the law is not narrowly tailored to that interest.

Freedom of association. The complaint also argues that the law infringes on Glass Lewis’s right of freedom to associate by burdening advice that takes into account “membership in or commitment to an organization or group that wholly or partly bases its evaluation or assessment of a company’s value over any period on nonfinancial factors,” including governance. As a signatory to the Principles for Responsible Investment and a member of the Society for Corporate Governance, Glass Lewis is associated with at least two such groups.

Due Process. Glass Lewis also submits that the law is void for vagueness. The key phrase “solely in the financial interest of the shareholders” is given a “sweeping, bespoke definition” that “depends on buzzwords whose meanings are notoriously amorphous and subjective.” Specifically, the “nonfinancial factors” that trigger the law include any of: diversity, equity, inclusion, sustainability, environmental, social, or governance factors. DEI and ESG specifically are subject to shifting political and social regulations, and guessing wrong can lead to a $10,000 penalty per violation.

Remedies. The complaint also challenges the law as preempted by ERISA, which instructs Glass Lewis’s clients to consider all relevant facts, and as violating the Dormant Commerce Clause.

The firm seeks declaratory relief and an injunction against enforcement of the statute.

The case is No. 25-cv-1153.

Attorneys: Bryce L. Callahan (Yetter Coleman LLP) for Glass, Lewis & Co., LLC.

Companies: Glass, Lewis & Co., LLC

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