Proxy advisers notch third legal win staving off Republican 'anti-ESG' rules

• The Indiana law, set to take effect July 1, was blocked on First Amendment grounds as unconstitutional 'viewpoint discrimination' because it imposed burdens only when proxy firms disagreed with management.
• ISS and Glass Lewis have now won preliminary injunctions in three states (Indiana, Kansas, and Texas) against similar laws pushed by Republican politicians concerned about their influence on ESG and executive pay issues.
• The firms face ongoing legal challenges, including separate lawsuits from Florida over consumer protection and antitrust allegations, with ISS vowing to fight similar suits in four additional states.

Summary: Proxy Advisers Win Legal Battle Against Republican Anti-ESG Regulations

Key Development: A federal judge has blocked an Indiana law targeting proxy advisory firms, marking the third consecutive legal victory for major advisers Institutional Shareholder Services (ISS) and Glass Lewis against Republican-led restrictions.

The Indiana Law: The legislation, set to take effect July 1, would have required proxy advisers to provide a "written financial analysis" when recommending votes against company management, or disclose that no such analysis was conducted. The law was designed to ensure advice focused on financial outcomes rather than ESG considerations.

Legal Ruling: U.S. District Judge Matthew Brookman granted a preliminary injunction, agreeing with plaintiffs that the law constituted unconstitutional "viewpoint discrimination" and violated free speech rights, as it imposed burdens only when advisers disagreed with management.

Broader Context: This follows similar injunctions blocking proxy adviser restrictions in Texas and Kansas. These Republican-backed efforts stem from complaints that ISS and Glass Lewis unduly favor environmental, social, and governance (ESG) issues over shareholder returns when advising institutional investors on corporate meeting votes.

Market Implications: The rulings preserve the status quo for proxy advisers who wield significant influence over shareholder voting at corporate annual meetings, particularly on contentious issues like executive compensation and ESG initiatives. The decisions suggest state-level attempts to restrict proxy advisory firms face significant constitutional hurdles.

Ongoing Litigation: Texas and Kansas cases remain pending in federal courts, with similar suits in Kentucky. Separately, Florida has filed consumer protection and antitrust allegations against both firms, which they deny. ISS faces similar suits in four additional states, signaling continued legal battles ahead despite recent victories.