A new Texas law subjects proxy advisory firms to extensive mandated disclosures if those firms base their services on “non-financial factors,” including ESG and DEI. Two of the largest firms, Glass Lewis and ISS, challenged the new law and won a preliminary injunction. While this prevents the Texas AG from enforcing against these firms for the time being, a trial on the merits of the case is set for September 2026. A recent Gibson Dunn memo explores the outcome if the law is upheld at trial:
“The trial on the merits, scheduled for February 2026, will directly impact rules governing proxy advisory services in the next full proxy season. If SB 2337 or a modified version is ultimately upheld, proxy advisors will have to include disclaimers on a significant number of recommendations, notify issuers and the Attorney General of differing advice, and provide written economic analyses—all of which could alter the timing, content, and consistency of recommendations institutional investors rely upon.”
The law also requires extensive disclosures whenever a proxy advisory firm’s voting recommendations differ from company management’s. This would make it more difficult to bring proxy challenges against Texas corporations or those proposing to become Texas corporations. Proxy challenges and activist investing have long been a hallmark of the ESG movement. Texas is promoting itself as an alternative to Delaware for corporates and this law is likely meant to encourage companies to incorporate in the state. Plaintiffs argue that the law violates the First Amendment by compelling speech and that it is overly vague. We’ll have to wait until trial to see how the litigation plays out, but in the meantime, Texas could appeal the injunction to the Fifth Circuit.
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