A federal judge on Friday blocked Texas from enforcing a first-of-its-kind state law restricting Glass Lewis and ISS, two of the best known proxy advisers, from advising shareholders on diversity, environmental and governance practices.
U.S. District Judge Alan Albright in Austin, Texas, issued preliminary injunctions against the state's Republican Attorney General Ken Paxton, after Glass Lewis and ISS said the law would unconstitutionally force them to convey Texas' preferred views on hot-button issues.
Paxton's office did not immediately respond to requests for comment.
Signed in June by Republican Gov. Greg Abbott, Senate Bill 2237 targeted "non-financial" advice on diversity, equity and inclusion (DEI) matters, and environmental, social and governance (ESG) matters.
The law requires proxy advisers to tell clients that such advice does not solely serve shareholders' financial interests, and to provide financial analyzes supporting the advice.
Glass Lewis and ISS sued on July 24, accusing Texas of undermining their First Amendment right to advise clients, including advice viewed as politically left-of-center.
The law was to take effect on September 1.
In seeking dismissals, Paxton said Glass Lewis and ISS didn't show the law would harm client relationships.
He also said requiring factual "non-ideological" disclosures wouldn't force proxy advisers to take political sides.
The law "applies equally to each party in the debate and will be enforced accordingly," Paxton said.
Many companies have this year scaled back or ended support for DEI programs. Republican President Donald Trump has made eliminating those programs a high priority.
Glass Lewis said it has more than 1,300 institutional investor clients, while ISS said it provided voting advice to about 2,000 clients last year.
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