Another lawsuit has been filed against Kentucky’s anti-ESG investing law. In addition to pending lawsuits from ISS and Glass Lewis, the Interfaith Center on Corporate Responsibility sued the Attorney General of Kentucky seeking to invalidate SB 183. The Complaint lays out the basis for the legal challenge, stating:
“The Kentucky General Assembly has passed a law aimed at suppressing ideas in the investment community. Senate Bill 183 regulates speech, explicitly discriminating based on viewpoint and content and compelling covered speakers to say things they don’t believe. And SB 183’s vagueness allows it to reach more speech than an appropriately calibrated law ever could. The Act throws the Commonwealth’s weight behind corporate leadership in every relevant debate, suppresses critical speech while solving no problems, and upends the constitutional infrastructure that underpins our democratic investment-information ecosystem.”
SB 183 requires proxy advisors to make certain disclosures and conduct “economic analysis” when recommending that shareholders vote against a company’s recommendations. The Interfaith Center on Corporate Responsibility believes that this constitutes compelled speech and that the law violates the First Amendment. Several similar anti-ESG laws in other states, including Texas, have failed or are currently being litigated. Currently, the SEC is toying with the idea of abdicating its role in the proxy contest process. If the agency opts to stay out of proxy contests, that makes lawsuits like this one even more important. In the absence of federal rules, shareholder proposals will be in the hands of state law.
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