In writing today’s blogs, I realized this week has an unintended theme. That theme is anti-ESG enforcement. Tuesday, I blogged on the ongoing controversy with state AGs and credit rating firms. Yesterday, I wrote about a new threat to the Big Four accounting firms. To round out the week, we have the most dramatic action yet. This one comes with an actual court filing, not just a threatening letter. Proxy advisory ISS spent the summer fighting an SEC administrative subpoena. The issue reached an impasse, with ISS refusing to turn over documents. This led to ISS being subpoenaed by the SEC in federal court last week. The SEC is arguing that ISS is not complying with a lawful request for information. Thus far, ISS has defended its reluctance on both privacy and First Amendment grounds. The SEC’s court filing discusses the information sought:
“The subpoena directed ISS to produce three categories of documents relevant to the Division of Enforcement’s investigation: (1) documents sufficient to identify ISS’s clients during a four-year period; (2) vote authorization registration agreements and any modifications, renewals, or terminations of those agreements and (3) an electronic export of ProxyExchange recommendation and voting data for a four-year period, including the data fields included in the three sample reports previously produced. ISS was required to produce the documents by August 4, 2026. At ISS’s request, the SEC agreed to an extension to August 11, 2026, and represented that it was amenable to affording ISS additional time to produce documents on a rolling basis.”
Funnily enough, the SEC’s Complaint only mentions ESG once throughout the 29-page document. This is despite the fact that their investigation is supposedly looking into whether ESG considerations violate fiduciary duty. Perhaps realizing the non-persuasiveness of their anti-ESG argument, the SEC stuck to arguing procedural grounds. The SEC alleges it is conducting routine oversight of ISS and ensuring the firm is upholding its fiduciary duty.
However, a slightly more cynical take is that this is an attempt to gather large swaths of information to fuel their allies’ ongoing Texas litigation against ISS. Embarking on what folks in the litigation business call a “fishing expedition.” The Texas litigation isn’t going smoothly for anti-ESG, and the judge previously issued a preliminary injunction against the state. This subpoena may be an effort to obtain information that the Texas AG can’t. Using regulatory oversight as a means of finding some shred of incriminating evidence to keep the case from dismissal on summary judgment. Such information sharing is allowed, even if the information is considered confidential under the exceptions disclosed in Forms 1661 and 1662. This exception allows the sharing of confidential information with federal and state prosecutorial authorities. Regardless of intent, ISS being subpoenaed by the SEC is a major escalation in the federal government’s ESG investigations and enforcement.
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