Stockholm (NordSIP) – As American conservatives continue to push back against sustainability efforts, the summer has been busy with ESG developments on the other side of the pond. The last week of July was particularly busy with lawsuits and subpoeas.
Glass Lewis and ISS Sue Texas
On July 24th, proxy advisers Glass Lewis and Institutional Investor Services (ISS) presented a complaint in US District Court Western District of Texas Austin Division against the Texas District Attorney Ken Paxton, as a way to challenge a Texas state law, which they worry will undermine their ability to advise shareholders. Senate Bill 2337 requires proxy advisors to disclose when their services are not solely in the financial interest of shareholders, especially if based on nonfinancial factors like ESG or DEI. Advisors must notify shareholders and companies if their recommendations involve these nonfinancial considerations and provide an economic analysis of the potential financial impact. Any conflicting advice given to different clients must also be disclosed, along with notification to the company and the Attorney General. The Texas Governor ratified the law on June 20th and it is due to take effect on September 1st, 2025.
In their filings, the proxy advisers warn that the new legislation violates their First Amendment right to free speech. Glass Lewis notes that S.B. 2337 “is a novel, first-of-its-kind law that regulates Glass Lewis’ speech and violates the First Amendment’s prohibition on viewpoint discrimination. Whenever Glass Lewis’ speech reflects certain viewpoints disfavored by the government, the Act compels Glass Lewis to broadcast the government’s contrary viewpoint and publicly condemn itself: Glass Lewis must tell its clients that its services are ‘not being provided solely in the financial interest of the company’s shareholders’ and ‘conspicuously disclose’ this warning on the firm’s website homepage.”
According to ISS, if the law is allowed to take effect, it “will subject ISS and other firms that provide proxy advisory services to burdensome regulatory requirements for the act of giving investment advice that Texas does not like. (…) Among other things, S.B. 2337 forces proxy advisers to falsely inform their clients and third-party companies that the adviser’s recommendation ‘subordinates the financial interests of shareholders to other objectives.’ If a proxy adviser refuses to utter that false statement, Texas law ironically deems that honesty to be a “deceptive trade practice” punishable by $10,000 fines per violation.”
The plaintiffs warn that the new Texas law forces them to “serve as a mouthpiece for the State’s viewpoint”, exposes them to reputational damage and “ruinous fines”. As a result, Glass Lewis and ISS requested that the court impose a preliminary injunction barring the Attorney General’s enforcement of the law by the date it is due to take effect.
CDP and SBTi Subpoenaed
Undeterred by these law suits, conservatives have opened another front in their war on ESG in Florida, where the state Attorney General has issued subpoenas to investigate the CDP (Climate Disclosure Project) and the Science Based Targets Initiative (SBTi). Describing the two organisations as part of a “climate cartel”, the Attorney General seeks to determine whether they have “violated state consumer protection or antitrust laws by coercing companies into disclosing proprietary data and paying for access under the guise of environmental transparency.
The announcement notes that SBTi was co-founded by CDP and the United Nations Global Compact, sells a service that validates companies climate goals and then directs them back to CDP to report their progress, “creating what appears to be a profit-driven feedback loop.”
“Radical climate activists have hijacked corporate governance and weaponized it against the free market,” Florida’s Attorney General James Uthmeier said on this occasion. “Florida will not sit back while international pressure groups shake down American companies to fund their ESG grift. We’re using every tool of the law to stop the Climate Cartel from exploiting businesses and misleading consumers.”
Neither CDP nor SBTi appear to have commented on these subpoenas so far.
Companies Keep ESG on Their Radar
Notwithstanding this tense political environment, a recent analysis shows that 430 companies included in the S&P500 index maintain a sustainability oversight committee. Whilst could be viewed as an encouraging indication that companies remain committed to sustainability despite political pressure, the mere existence of these panels might not be enough. Indeed it may be that the existence of these committees is due to the present ongoing politcal tensions and how they inform regulatory concerns.
As Professor Andreas Rasche of the Copenhagen Business School notes, “what truly matters is what these committees actually do, and the mindset with which they approach sustainability discussions.” Citing a research paper where he delves into these questions in more depth, he notes that “a board-level sustainability committee might focus solely on compliance issues”, and that these committees’ existence may potentially be merely motivated by a need “to navigate the rapidly evolving regulatory landscape surrounding sustainability.”
