Texas ESG Investment Disclosure Law Blocked by Judge (Correct)

A Texas ESG law won’t go into effect next week, a federal judge ruled from the bench Thursday, halting the requirement that proxy advisory firms tell clients that their ESG-related advice is based on more than maximum earnings.

Accepting free speech concerns from proxy advising giants Glass Lewis & Co. and Institutional Shareholder Services Inc., US District Judge Alan Albright of the Western District of Texas granted an injunction temporarily blocking the Republican-backed law.

“I don’t understand the purpose of the statute,” Albright said during a hearing in Waco. “I understand the motivation of it. Who are you protecting?”

Albright, an appointee of President Donald Trump, said the statute wrongly compels speech by forcing the advisory firms to issue disclosures “they don’t think are accurate.”

The injunction comes days before the law, SB 2337, was set to go into effect on on Sept. 1. Albright said he’ll issue a written order within the next 30 days. He set a trial for Feb. 2.

“We’re grateful for the court’s ruling,” Yetter Coleman’s Grant Martinez, counsel for Glass Lewis, said outside the courtroom.

Glenn Hamer, president of Texas Association of Business, which intervened as a defendant to defend the law, declined to comment.

‘Our Opinion, Our Advice’

Republicans in the Texas legislature prioritized the proposal as part of a business friendly agenda cracking down on investing tied to environmental, social, and governance goals.

It requires proxy firms to tell customers that they use “nonfinancial factors” in creating ESG-related recommendations. The statute also directs proxy firms to include the notice on their website home pages and to disclose that guidance to shareholders voting for companies based in Texas or planning to move to the state.

American Airlines Group Inc., Exxon Mobil Corp., and Tesla Inc. are among companies headquartered in Texas. Proxy advice concerning hundreds of companies would be controlled under SB 2337, according to Glass Lewis.

Opposition formed an alliance between Glass Lewis and ISS, the biggest providers of recommendations to pension funds and other large investors at companies’ annual meetings. The firms long have feuded with Republicans and business groups that say they instill their ideological views to sway votes on ESG proposals.

The firms filed separate challenges on the same day last month, and Albright opted to hear them together.

Advice provided to clients “is our opinion, our advice, our recommendations,” and not statements that can be proven false, Martinez argued.

Albright agreed: “It’s not saying water will turn to ice at 32 degrees.”

Proxy firms found to be in violation of the statute are subject to a private right of action from a company that is subject to their investing advice.

ISS has 40 employees “preparing for D-Day,” at an expense of millions of dollars, its attorney, Bruce Oakley of Hogan Lovells, told Albright.

No Witnesses

Before the hearing, Albright entertained a motion to intervene as defendants by the Texas Stock Exchange and the Texas Association of Business.

Albright, who granted the request, got testy in accusing their attorney of downplaying the language in the law by insisting it merely requires disclosure that its guidance “includes” factors not grounded in maximizing returns.

“You’ve completely neutered what the law says,” Albright told Mark Rasmussen of Jones Day.

Earlier in the week, Albright agreed to postpone the hearing by a day to give the state an opportunity to present evidence at the hearing. Yet, to begin the morning, a lawyer for Texas Attorney General Ken Paxton (R) revealed that he couldn’t get any witnesses lined up, and asked Albright to again reschedule the hearing on the condition the office wouldn’t enforce the law in the meantime.

“I’m moving forward,” Albright said.

Glass Lewis is represented by Yetter Coleman. Institutional Shareholder Services is represented by Hogan Lovells. The Texas Stock Exchange and Texas Association of Business is represented by Jones Day.

The cases ares Glass Lewis v. Paxton, W.D. Tex., No. 1:25-cv-01153, 8/28/25 and Institutional Shareholder Services Inc. v. Paxton, W.D. Tex., No. 1:25-cv-01160, 8/28/25.