Dallas, July 27, 2025 – Glass Lewis, one of the country’s most influential proxy advisory firms, has filed a federal lawsuit against the State of Texas in response to a new law that restricts how proxy firms can incorporate ESG (environmental, social, and governance) and DEI (diversity, equity, and inclusion) factors in their recommendations. The law, scheduled to take effect on September 1, 2025, is already drawing national attention for its potential to reshape corporate governance practices and proxy voting standards.
The lawsuit, filed in the U.S. District Court for the Northern District of Texas, names Texas Attorney General Ken Paxton as a defendant. In its filing, Glass Lewis contends the new law imposes unconstitutional limits on speech and violates the First Amendment. The firm argues the legislation “unreasonably burdens” proxy advisers by requiring extensive financial justification for any recommendation based on non-financial considerations—such as environmental risk, board diversity, or human rights issues.
“This law effectively censors viewpoints that are increasingly relevant to investors,” a Glass Lewis spokesperson stated. “By mandating a narrow definition of what constitutes financially material analysis, it restricts the ability of firms like ours to provide comprehensive, forward-looking governance assessments.”
The Texas statute mandates that any proxy advisory recommendation that factors in ESG or DEI concerns must be supported by a detailed financial analysis. This means that if Glass Lewis or Institutional Shareholder Services (ISS), another major proxy firm, recommends a vote in favor of a sustainability initiative or against a board lacking diversity, they must demonstrate a direct and quantifiable financial impact—a demand the firm considers arbitrary and burdensome.
The legal action marks Glass Lewis’s first direct challenge to state legislation aimed at curtailing ESG influence in capital markets. Similar laws have been introduced or passed in states like Florida, Mississippi, and Missouri. However, several have already faced constitutional challenges, with some being struck down by federal courts for infringing on commercial speech and professional discretion.
Legal analysts suggest the Texas case could set a precedent for how far states can go in regulating shareholder advisory services. “This lawsuit may become a pivotal test of state-level authority to dictate the content and methodology of professional investment advice,” said a professor of corporate law at the University of Texas.
The backdrop of the case is a growing political campaign against ESG investing, with conservative policymakers portraying ESG as a vehicle for advancing progressive agendas through financial systems. Texas, in particular, has taken a leading role in opposing what it labels as “woke capitalism,” passing laws that bar state investments in firms that boycott fossil fuels or firearms.
However, critics argue such laws interfere with the fiduciary duties of institutional investors and limit the flow of critical governance information. Many asset managers rely on firms like Glass Lewis to provide independent analysis of board performance, shareholder resolutions, and sustainability risks.
With major corporations such as ExxonMobil, American Airlines, and Tesla headquartered in Texas, the implications of this law extend well beyond the state. Proxy votes at these companies could be affected, influencing shareholder engagement strategies across national and global markets.
Glass Lewis maintains that its recommendations are rooted in thorough research and reflect the priorities of a diverse client base, including pension funds, endowments, and asset managers. The firm warns that the new law will undermine investor access to nuanced advice, especially as corporate ESG risks continue to evolve and grow in complexity.
“This isn’t just about Glass Lewis—it’s about the right of shareholders to receive the analysis they need to make informed decisions,” said an executive familiar with the legal filing.
The lawsuit could ultimately lead to a federal ruling on the constitutionality of state intervention in proxy advisory practices—an area that has historically been lightly regulated by the Securities and Exchange Commission (SEC), which has itself wrestled with how best to oversee the industry without stifling its independence.
With litigation now underway, all eyes are on the courts as the outcome may redefine the boundaries of ESG discourse, investor communication, and corporate governance standards in the United States.
