Kansas’s anti-ESG investing law is on ice as a trial court recently issued a preliminary injunction barring enforcement. The court found that the law likely violates the First Amendment and stayed the law pending the outcome of litigation. Kansas’s SB 375 requires proxy advisors to make certain disclaimers regarding ESG. ISS considers these disclaimers false and misleading. The proxy advisory giant challenged the law on grounds that it unconstitutionally compelled speech. In a press release, ISS discusses the injunction:
“The Kansas district court found this structure to be viewpoint-based on its face and concluded that ISS is likely to succeed on the merits of its First Amendment claim. Kansas declined to argue the law could survive strict scrutiny.
Kansas SB 375 was not a transparency law, and it was not in the interest of American investors or businesses. It required ISS to declare — to clients, to company boards, and publicly — that certain of its recommendations are not based on financial analysis. That declaration is false and its requirement threatens free speech. ISS recommendations reflect rigorous analysis applied to client-selected criteria.”
A similar situation played out in Texas courts over their anti-ESG investing law. However, in that case, the Fifth Circuit Court of Appeals reversed the trial court’s injunction allowing the law to continue for the time being. Ultimately, these lawsuits are likely to end up in the appeals courts. If circuit splits emerge, we may even see the Supreme Court weigh in at some point in the future.
Our members can learn more about ESG litigation here.
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