Investor Choice Infringement: Texas Advances Proxy Advisor Regulation

June 17, 2025

By Jack Grogan-Fenn

Proxy advisory firms are set to imminently discover whether they will be subject to a stringent new regulation in Texas requiring deeper disclosures on voting recommendations that risk constricting investor choice.

Senate Bill (SB) 2337 would require proxy advisors that “deviate” from acting in the “financial interest” of shareholders to “clearly disclose that fact”. This includes advisors recommending votes based on environmental, social, or governance (ESG) investing, diversity, equity, or inclusion (DEI) factors, and social credit or sustainability scores.

It will demand that proxy advisors offer “clear, factual disclosures” when recommending the casting of a vote for non-financial reasons or provide “conflicting advice” to multiple clients seeking to “maximise financial returns”. The bill argues this is necessary in order to “prevent fraudulent or deceptive acts and practices” in Texas.

However, there are concerns that SB 2337 could detrimentally impact investors’ freedom of choice, by making it considerably more challenging to their ability to consider ESG, DEI and other risk factors into their investment decisions.

The bill was signed in the Texas State Senate on June 1 and in the state’s House of Representatives on June 2, being sent to Governor Greg Abbott for final approval that same day.

The governor has until June 22 to sign or veto the bill. If signed into law or Abbott opts not to veto it, SB 2337 will come into effect on September 1.

SB 2337 would apply to proxy advisor services provided to companies and other business entities that are organised or created under Texas law, has its principal place of business in Texas, or is a foreign entity proposing to become a domestic Texas entity by merger, conversion or otherwise.

Foley & Lardner, a US-based law firm, argued that the regulation “ensures that shareholders, including funds with their own shareholders, are not misled into following voting recommendations that subordinates their financial interests to a proxy advisor’s particular ESG, DEI, or other social agenda”.

Proxy advisors have been a prominent target for US lawmakers this year, overlapping with a wider attack on ESG, DEI and several other issues. There are major concerns over SB 2337 in Texas, and the regulation of proxy advisors in general.

In April, the US House of Representatives' Committee on Financial Services held a hearing entitled “Exposing the Proxy Advisory Cartel”, which considered the “role and influence” of proxy advisory firms in “shaping corporate governance and shareholder voting outcomes”.

The same month, Minerva Analytics reported that lobbyist association Business Roundtable had recommended the affirmation of the US Securities and Exchange Commission (SEC) authority to regulate proxy advisory firms as part of a report on proxy process reforms.

This was followed last month by three Republican senators sending a letter to the leaders of US proxy advisors detailing concerns that the proxy advisors are “influencing” US public policy on economic, environmental and social issues while operating with “virtually no transparency, minimal accountability, and no meaningful regulatory oversight”.

Last month, in a letter to Ann Wagner, Chair of the US House’s Subcommittee on Capital Markets, and other subcommittee member, Minerva Analytics’ CEO Sarah Wilson cautioned against introducing new regulation for proxy advisors.

She warned that new rules risk undermining intellectual property rights, conflicting with financial duties, distorting market incentives and detrimentally impacting investor confidence.

Wilson said that there was “no compelling legal, economic or fiduciary rationale for new proxy advisor regulation”. She added: “Demands for proxy advisor regulation subordinate shareholder interests to corporate and advisor convenience, weaken transparency, undermine fiduciary integrity and expose the system to constitutional and competitive vulnerabilities.”

Wilson warned that the introduction of new regulation, such as complex disclosure or oversight requirements, risks creating high fixed compliance costs that disproportionately burden new entrants and further entrench incumbents.

Wilson underscored that regulation would not lead to higher quality services or more competition, rather creating “additional costs that would ultimately be passed on to investors and their clients”.

She added that stewardship should not be viewed through a “partisan lens”, amid the increasingly politicised way proxy advisory firms are viewed.

“It is not a left- or right-wing issue; it is a fiduciary responsibility rooted in the principles of self-governance and long-term value protection,” said Wilson. “We do not “solicit” proxies, and we are agnostic as to how clients vote. Our objective is to ensure that votes are managed and executed with comprehensive information and efficient administration.”

Minerva has offered to directly engage with Ann Wagner and the subcommittee to inform and support policy development in this area.

Wilson’s concerns were echoed by Freedom to Invest, an initiative created by non-profit Ceres in 2023, in the context of SB 2337. The organisation stated that the “burdensome regulation” would require “onerous information from investors when the state disagrees with what a shareholder deems a financial risk”.

“Investors consider a wide range of material financial issues, such as extreme weather, labour shortages and inflation, when they engage companies in their portfolios through direct dialogue or the proxy voting process,” it added. “If left up to the state to decide if these issues are financial, an entire industry of the Texas economy would be at risk. Unnecessary burdens on proxy advisory businesses and organisations will hurt the Texas economy and cost jobs.”

Texas has also moved to restrict the ability of shareholders to file proposals amid a wider regulatory effort to limit shareholder rights, negatively impacting on investor freedoms. As reported by Minerva last month, a bill in Texas in imposing new restrictions on shareholder eligibility to submit proposals passed by 45 to 5.

The bill would impose restrictions such as requiring shareholders to own U$1 million or 3% of voting stock, disqualifying those who have held shares for less than six months and requiring the solicitation of 67% of shareholders before a proposal can appear on the proxy.

This would go further than SEC rules ratified by a federal judge last week making it more challenging for shareholders to file proposals at companies’ AGMs, as reported by Minerva Analytics.

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