Glass Lewis and ISS file U.S. lawsuit over Texas ESG restrictions

July 25, 2025 | Sustainable Investor

Two of the most influential voices in global shareholder governance, Glass Lewis and Institutional Shareholder Services (ISS), have launched federal lawsuits against the state of Texas, accusing lawmakers of violating their constitutional rights through new legislation that limits ESG-related proxy advice.

Glass Lewis called the law “blatantly unconstitutional,” arguing that it compels speech and viewpoint discrimination—an infringement on First Amendment rights. Its lawsuit, filed in the U.S. District Court for the Western District of Texas, was echoed by a nearly identical filing from ISS shortly after. Both firms contend that the law represents an overt attempt by Texas to silence viewpoints it deems politically unfavourable.

What’s at Stake for Institutional Investors?

At a time when stewardship, proxy voting, and ESG engagement are under increasing scrutiny, this legal showdown has broad implications for how institutional investors interact with corporate governance in the U.S.

Glass Lewis and ISS collectively advise on more than 90% of proxy votes globally, shaping outcomes at AGMs for trillions of dollars in listed equities. Many asset owners, particularly pension funds, sovereign wealth funds, and insurance firms, rely on these providers to assess complex resolutions and guide ESG-integrated voting decisions.

The Texas law could force these providers to alter or limit their analysis, particularly on resolutions related to climate risk, human capital, or board diversity.

“If enacted, this law will chill speech and impair the ability of investors to hold boards accountable,” said a Glass Lewis spokesperson in a public statement. “We are not lobbying. We are not activists. We are research providers helping investors make informed choices.”

A Broader Political Playbook?

This isn’t the first time ESG governance has been caught in the crosshairs of U.S. state politics. Several Republican-led states, including Florida and Missouri, have introduced or considered similar measures, painting ESG as a “woke” overreach into financial markets.

Texas, home to numerous energy firms and a conservative policy base, has become ground zero for this backlash. The law follows earlier efforts to blacklist financial institutions seen to be boycotting fossil fuel companies or prioritising DEI policies.

Critics warn that such state-led laws are fragmenting the regulatory landscape and forcing investors and advisors into compliance minefields.

Legal Precedent & Likely Outcomes

The case hinges on whether courts view proxy advice as protected speech or commercial activity subject to state regulation. Previous rulings, such as one in Missouri, suggest the former, particularly when advice is issued to sophisticated institutional clients.

Legal scholars note that if the Texas law is upheld, it could embolden other states to impose similar constraints, creating a patchwork governance regime across the U.S. a nightmare scenario for asset owners seeking consistent stewardship frameworks.

Key Takeaways for Stewardship Leaders

Looking Ahead

A preliminary ruling is expected before the September 1 enforcement deadline. If the law is not blocked, it could immediately alter the 2025 proxy season, forcing proxy firms to withhold ESG guidance for companies tied to Texas.

For institutional asset owners, the outcome of this case will shape not just the mechanics of proxy voting, but the contours of fiduciary duty in an increasingly politicised investment landscape.

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