Texas AG Paxton Vows to Fight Proxy Advisor Curbs Ruling at Fifth Circuit: A Clash Over ESG and DEI in Corporate Governance
Texas Attorney General Ken Paxton, a staunch critic of “woke” corporate policies, announced on September 19, 2025, that he will immediately appeal a federal judge’s preliminary injunction blocking enforcement of a new state law targeting proxy advisory firms. The law, Senate Bill 2337, mandates disclosures for recommendations influenced by “non-financial” factors like diversity, equity, and inclusion (DEI) or environmental, social, and governance (ESG) criteria—prompting lawsuits from industry giants Glass Lewis and Institutional Shareholder Services (ISS). Paxton’s move to the conservative U.S. Court of Appeals for the Fifth Circuit signals an escalating battle over corporate influence and investor transparency in America’s energy capital.
This development comes amid Paxton’s broader crusade against perceived ideological overreach in business, including a fresh probe into the same firms for allegedly misleading investors. As Texas—home to ExxonMobil and other oil majors—pushes back against ESG pressures, the appeal could ripple through Wall Street, testing the limits of state power in federal securities territory.
The Law at the Heart of the Fight: Senate Bill 2337 Explained
Enacted in June 2025 and set to take effect September 1, Senate Bill 2337 amends the Texas Business Organizations Code to regulate proxy advisory services for companies headquartered, incorporated, or re-domesticating in the state. Under § 6A.101(a), advisors must base voting recommendations “solely in the financial interest of the company’s shareholders” unless they explicitly disclose reliance on non-financial elements.
Non-financial triggers include:
- Social credit or sustainability scores.
- Policies inconsistent with a company’s board recommendations (unless backed by financial analysis).
- Commitments to ESG/DEI initiatives, gender quotas, or activist climate targets.
Paxton champions it as a shield against “liberal activists posing as proxy advisors,” arguing it promotes transparency and fiduciary duty. Critics, including the plaintiffs, call it an unconstitutional overreach that conflicts with SEC rules and stifles free speech.
The law builds on Texas’ anti-ESG wave, following 2023 boycotts of firms like BlackRock for “woke” investing—moves that drew federal scrutiny but aligned with Republican-led states.
The Lawsuits and Injunction: Proxy Giants Strike Back
Glass Lewis and ISS—the duopoly controlling 97% of the $1.5 billion proxy advisory market—sued Paxton on July 24, 2025, in the U.S. District Court for the Western District of Texas, Waco Division. They sought preliminary injunctions, claiming SB 2337 is “unworkable,” exposes them to liability, and violates the First Amendment by compelling speech.
U.S. District Judge Alan D. Albright, known for tech patent cases, granted the injunctions on August 29, 2025, halting enforcement pending trial set for February 2026. In oral rulings, Albright found the firms likely to succeed on merits, citing vagueness and federal preemption under the Securities Exchange Act of 1934. Paxton moved to dismiss both suits, but Albright denied, paving the way for appeal.
Glass Lewis stated the law “conflicts with federal securities laws and would serve no useful purpose,” while ISS decried it as “unprecedented and blatantly unconstitutional.” The firms argue disclosures would reveal proprietary methodologies, harming competitiveness.
Paxton’s Appeal Strategy: To the Fifth Circuit and Beyond
In a filing to Albright’s court on September 19, Paxton notified of his intent to appeal to the Fifth Circuit, seeking an emergency stay to reinstate the law during litigation. “The role of a proxy advisor is to provide sound guidance based on financial considerations, not use their position to promote woke, left-wing ideology,” Paxton reiterated, framing the appeal as defending Texas investors from “radical agendas.”
The Fifth Circuit, covering Texas and known for conservative leanings (e.g., upholding Paxton’s DACA challenges), offers a favorable venue. Paxton’s team argues the injunction errs on irreparable harm—claiming the law’s minimal burden justifies transparency. A win could fast-track enforcement; a loss might doom SB 2337.
This follows Paxton’s September 17 announcement of civil investigative demands (CIDs) into Glass Lewis and ISS for potential consumer protection violations, probing if ESG/DEI pushes mislead clients. ISS vowed to “vigorously defend” against what it calls baseless claims.
Background: Paxton’s Anti-ESG Crusade and Industry Pushback
Paxton’s tenure has been defined by battles against progressive corporate trends. In 2023, he led a coalition divesting $8.5 billion from BlackRock over ESG “boycotts” of fossil fuels. SB 2337 extends this, targeting proxy firms’ sway over 80% of institutional votes.
Proponents say it counters “ideological capture,” citing studies showing ESG recommendations dilute returns by 1-2% annually. Opponents, backed by SEC Chair Gary Gensler, warn it fragments markets and invites state overreach—echoing 19 states’ anti-ESG laws now facing suits.
On X, reactions polarize: Conservative users hail Paxton as a “warrior against woke capital” (#DefendTexas), while critics label it “anti-innovation censorship.” Legal experts like Vinson & Elkins predict a “prolonged fight,” with potential Supreme Court escalation.
Implications for U.S. Readers: Economy, Politics, and Corporate America
For everyday Americans, this saga affects retirement savings—proxy firms guide trillions in 401(k)s and pensions. If Paxton prevails, it could curb ESG integration, potentially boosting fossil fuel stocks (Texas’ $200B industry) but hiking climate risks for investors. Economically, fragmented advice might raise compliance costs by $100M yearly for firms, per Foley & Lardner.
Politically, it’s red-state fuel under Trump 2.0, aligning with Project 2025’s deregulatory bent—possibly inspiring federal curbs on proxy power. For tech and finance pros, it underscores state-federal tensions, mirroring TikTok bans or data privacy clashes.
Conclusion: A High-Stakes Showdown on Shareholder Values
Paxton’s Fifth Circuit appeal transforms SB 2337 from a Texas quirk into a national referendum on ESG’s role in capitalism. As discovery ramps up and CIDs probe deeper, expect fireworks—potentially reshaping how $50 trillion in U.S. assets vote. For now, the law slumbers under injunction, but Paxton’s vow signals no retreat: Transparency, he insists, trumps ideology every time. With Texas AG Paxton proxy advisors appeal, Fifth Circuit SB 2337, ESG DEI proxy law Texas, Glass Lewis ISS lawsuit Paxton, and anti-woke corporate law 2025 in the spotlight, this proxy war is just heating up.