On July 30, 2025, Glass Lewis, one of the nation’s leading proxy advisory firms, filed a lawsuit against the state of Texas, challenging a newly enacted law that limits the scope of shareholder recommendations based on Environmental, Social, and Governance (ESG) or Diversity, Equity, and Inclusion (DEI) factors. The law, set to take effect on September 1, mandates that any advisory vote recommendation involving non-financial considerations must be explicitly tied to a demonstrated financial impact or performance metric. Glass Lewis argues that this restriction violates its First Amendment rights and threatens the foundation of its advisory services.
The lawsuit represents a significant escalation in the growing national conflict between corporate governance advocates and Republican-led state governments, which have increasingly pushed back against the influence of ESG-related policies in corporate decision-making. In its filing, Glass Lewis contends that the law not only imposes unconstitutional restrictions on free speech but also undermines the ability of institutional investors to receive holistic, forward-looking guidance on governance matters. By forcing proxy advisers to justify every ESG reference through a narrow financial lens, critics argue the law effectively censors important qualitative insights that could influence shareholder decisions.
Texas lawmakers passed the statute earlier this year as part of a broader campaign targeting perceived “woke capitalism.” State leaders argue that proxy advisers have grown too influential and claim that ESG-driven voting recommendations may steer corporate behavior in ways that do not align with shareholders’ financial interests or state investment objectives. The law prohibits state pension funds and other government-affiliated investors from relying on proxy guidance unless the firm complies with the financial materiality clause—prompting firms like Glass Lewis and ISS (Institutional Shareholder Services) to reassess their operational exposure in Texas.
Glass Lewis’ lawsuit highlights the potential constitutional and economic implications of these laws. The firm, which serves more than 1,300 clients globally—including major pension funds and asset managers—warns that the Texas statute could force it to alter its entire business model. At the heart of the suit is a claim that the government cannot dictate how an independent research organization frames its analysis, particularly when ESG and DEI topics are increasingly material to long-term corporate performance and risk.
Legal experts note that the case could set a national precedent. If courts rule in favor of Texas, other states may follow with similar restrictions, potentially fragmenting corporate governance practices across jurisdictions. Already, states like Florida, Mississippi, and Missouri have adopted or proposed laws to curb ESG-focused investment guidance. In one high-profile instance, a Missouri law was struck down by federal courts on grounds of overreach and inconsistency with federal securities regulations—adding legal uncertainty to the patchwork of state-level efforts.
The lawsuit also raises complex questions for corporate legal teams, investor relations departments, and compliance officers. As the regulatory environment becomes increasingly politicized, companies may face new disclosure requirements, reporting frameworks, and fiduciary challenges. Firms must weigh how to balance shareholder interests, regulatory expectations, and reputational risk in jurisdictions where ESG policies are contested.
Institutional investors and governance professionals are watching closely. The outcome of the case could reshape how proxy advice is delivered nationwide and influence the future of shareholder engagement on social and environmental issues. It may also determine whether state governments can lawfully restrict what types of information investors are allowed to consider when voting on corporate matters.
As the legal battle unfolds, the industry faces a critical inflection point. The decision could redefine the boundaries of corporate speech, investor rights, and the scope of fiduciary duty in the evolving landscape of ESG and corporate accountability.
