A proxy advisor (Institutional Shareholder Services Inc. (ISS)) 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.” ISS asserted that the law violated the First Amendment and was void for vagueness, violated the Contracts Clause, and was preempted by the federal Investment Advisers Act of 1940 and Securities and Exchange Commission regulations. Another proxy advisor (Glass, Lewis & Co., LLC (Glass Lewis)) also filed a lawsuit challenging the law.

Challenge to a Texas law that requires proxy advisors to disclose that their advice is “not provided solely in the financial interest of the shareholders of a company” if is wholly or partly based on "nonfinancial factors" such as ESG.

Institutional Shareholder Services Inc. v. Paxton

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Proxy Advisors Filed Lawsuit Challenging Texas Law Imposing Requirements for Advice Based on “Nonfinancial Factors”

Filed

United States of America

Texas

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An aim to achieve a quantifiable outcome within a given time-frame, set by an institution such as a national government.

Policy instruments are techniques or tools used by governing authorities to promote certain policies in order to achieve predetermined goals. Put simply, instruments are how a government tries to achieve its goals, with this taxonomy being focused on national policy instruments.

Risk is the potential for adverse consequences resulting from the dynamic interplay between (climate-related) hazards, exposure, and vulnerability of affected human or ecological systems.

Groups  of people who are adversely affected by climate change or the response to it

A set of principles, processes, and practices that build economic and political power to shift from an extractive economy to a regenerative economy.

Justice is the ethical and political framework that addresses fairness, including issues of responsibility, rights, and structural inequity.

Renewable energy means all forms of energy produced from renewable sources in a sustainable manner.

Fossil fuel is a generic term for non-renewable energy sources such as coal, fossil gas, and oil (including crude oil, and petroleum products), that can be used for electricity and heat generation. Fossil fuels are hydrocarbons formed from pressurised and heated organic material buried over millions of years.

Molecules in the atmosphere that play a key role in the greenhouse effect by trapping heat radiating from Earth’s surface.

Area of the economy in which actors engage in identical or related activities.

In human systems, the process of adjustment to actual or expected climate change and its effects, in order to moderate harm, increase resilience or exploit beneficial opportunities. In natural systems, the process of adjustment to actual climate change and its effects; human intervention may facilitate adjustment to expected climate change and its effects.

The management and allocation of funds, assets and investments to meet various objectives

Either money or something of monetary value is transferred between two or more organisations, people or countries.

Fossil gas, commonly known as natural gas, is a fossil fuel consisting chiefly of methane with smaller amounts of other hydrocarbons and trace gases, found in underground deposits.

Coal is a combustible sedimentary rock formed from carbonised plant matter, rich in carbon and hydrocarbons, and occurring in several main types including hard coal and brown coal.

Work that is productive and delivers a fair income, security in the workplace and social protection for all, better prospects for personal development and social integration, freedom for people to express their concerns, organize and participate in the decisions that affect their lives and equality of opportunity.

woman and genders outside of the gender binary

The activities of industries involved in the production, distribution, and sale of energy, including electricity, gas, and renewables.

This sector provides communication services, software development, and IT solutions.

Activities of government agencies and institutions that provide public services, enforce laws and manage public resources.

Activities of businesses and institutions that provide financial services and products to individuals and organisations.

Climate change can have a range of impacts on technological system. Extreme weather events can cause infrastructure failures like power outages or damage to roads and bridges, as well as the impacts from waste following natural disasters. Human activities also cause technological impacts, such as the risks posed by oil spillage and leaks.

Proxy Advisors Filed Lawsuit Challenging Texas Law Imposing Requirements for Advice Based on “Nonfinancial Factors”

Risk

Impacted group

Just transition

Renewable energy

Fossil fuel

Economic sector

Finance