Glass, Lewis & Co. v. Paxton

A proxy advisor (Glass, Lewis & Co., LLC (Glass Lewis)) filed a lawsuit in the federal district court for the Western District of Texas challenging a Texas law (S.B. 2337) that requires that a proxy advisor disclose to its clients and the subject company and publish statements on its website if its advice is “not provided solely in the financial interest of the shareholders of a company.” This requirement applies to advice that is “wholly or partly based on, or otherwise takes into account, one or more nonfinancial factors,” including, among other factors, environmental, social, or governance (ESG) goals, factors, or investment principles and “a social credit or sustainability factor or score.” Glass Lewis asserted that S.B. 2337 violated the First Amendment and was void for vagueness in violation of the Due Process Clause of the Fourteenth Amendment, was preempted by the Employee Retirement Income Security Act, and violated the dormant Commerce Clause. Institutional Shareholder Services Inc., another proxy advisor, also filed a lawsuit challenging the law.