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A federal judge has delivered a decisive blow to Texas’s attempt to regulate proxy advisory firms on diversity, equity, inclusion (DEI), and environmental, social, and governance (ESG) advice. On August 29, 2025, U.S. District Judge Alan Albright in Austin issued a preliminary injunction blocking enforcement of Senate Bill 2237: a new Texas law that was set to take effect on September 1.
Signed into law in June, the legislation would require proxy advisers to notify clients that DEI or ESG-based recommendations do not solely serve shareholders’ financial interests and must be accompanied by financial analysis. Two major firms, Glass Lewis and ISS, sued the state in late July, arguing that the law violated their First Amendment rights by compelling speech that aligned with the state’s ideological stance.
In his ruling, Judge Albright sided with the plaintiffs, stating that the law could not be enforced against the proxy advisory firms while the case proceeds. The injunction protects Glass Lewis and ISS from enforcement action by the Texas Attorney General, although the broader law still technically stands and may be applied to other firms. The state is expected to consider appeals or broader enforcement.
Glass Lewis and ISS welcomed the decision, reaffirming their commitment to providing independent, research-based recommendations to their clients.
This legal battle reflects the escalating national debate over ESG and DEI considerations in corporate governance. Texas law is one of several recent attempts by state legislatures to limit how financial and advisory firms incorporate non-financial factors into their analyses. Critics argue such efforts infringe on free speech and hinder investor transparency.
With trial proceedings scheduled for early February 2026, the case could set a critical precedent in determining how far states can go in regulating financial advice that touches on social and environmental issues.
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