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.

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.

Glass, Lewis & Co. v. Paxton

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

Filed

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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

People who are less able to respond to the effects of climate change due to having limited financial or physical assets

Zoning and spatial planning are both methods for guiding the distribution of people and activities in a space, and are regulatory restriction.

A ban is a legal action that prevents the sale or supply of a product or service, or that recalls a product from the market. Examples are bans on SF6, greenwashing, fossil fuel advertisement or single-use plastics.

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

Actions to reduce emissions in energy generation and supply.

Social protection systems consist of policies that help people manage social risks in order to prevent poverty and maintain decent incomes and living standards

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.

People who have left their homes, whether through force, voluntarily, or a mixture of both

woman and genders outside of the gender binary

This sector creates and distributes information and entertainment through television, radio, print, and digital platforms.

This sector involves activities that impart knowledge and skills to individuals, including formal schooling, vocational training and educational support.

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 impacts our society by disrupting the natural, economic and social systems we depend on. Physical hazards and underlying vulnerabilities can lead to increased resource competition for food and water, which can heighten the risk of conflict.

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

Policy instrument

Risk

Impacted group

Just transition

Renewable energy

Fossil fuel

Economic sector

Finance