Texas has withdrawn its lawsuit against a major proxy advisor and appears to have paused proceedings in two related cases concerning Senate Bill (SB) 2337, shortly after Democrats secured control of key statewide offices in the recent US midterm elections. The developments raise fresh questions about the future of one of the most prominent state-level campaigns targeting ESG-related investment research and stewardship activity.

Taken together, the developments suggest Texas may be reassessing one of the most prominent state-level efforts to regulate proxy advisors and ESG-related investment research. With incoming Attorney General (AG) Nathan Johnson expected to review several politically contentious cases, investors will be watching closely to see whether the state's anti-ESG agenda continues through litigation, shifts direction or loses momentum altogether.

Proxy advisor lawsuit withdrawn

A lawsuit brought by current Texas AG Ken Paxton against a major proxy advisor has been formally withdrawn. As of 9 November, the case status was updated from pending to closed, with court records indicating a notice of nonsuit. A notice of nonsuit means the plaintiff has voluntarily withdrawn the lawsuit.

The lawsuit, filed in July, was widely viewed as an attempt to challenge proxy advisor activity using the Texas Deceptive Trade Practices Act (DTPA) after SB 2337 faced repeated constitutional obstacles in court. Rather than relying on the contested proxy advisor law, the case focused on whether a proxy advisor's voting recommendations and marketing materials accurately reflected the basis on which recommendations were developed.

Paxton's complaint alleged that the firm had "prioritize[d] its own environmental, social and governance agenda over the fiscal wellbeing of its clients" and engaged in "false, deceptive and misleading practices" by presenting its advice as independent and objective while allegedly pursuing a separate agenda. Unlike SB 2337, the DTPA is a broad consumer protection statute that applies across sectors.

Although the case could technically be brought again, its withdrawal comes as Paxton prepares to leave office following his defeat for one of Texas' Senate seats in the midterm elections. Paxton had stood down as AG to stand for the Senate, with incoming Democrat Johnson decisively defeating Republican opponent Mayes Middleton. Johnson seemingly appears less likely to pursue proxy advisors than Paxton.

“In a lot of states, Republican attorney[s] general have been replaced with Democratic ones, and that suggests some culture war lawsuits, including those waged against proxy advisors, may be discontinued,” Ann Lipton, Professor at University of Colorado Law School, told Minerva Analytics. “It remains to be seen what happens with state legislatures that passed anti-ESG proxy advisor regulation.”

SB 2337 litigation further loses momentum

The long-running legal dispute over SB 2337 also appears to have slowed. The two lawsuits brought by proxy advisors challenging enforcement of the law were both updated with vacation notices on 9 November, indicating that previously scheduled proceedings or deadlines were cancelled or withdrawn.

While the notices do not amount to a substantive ruling on the legality of SB 2337 and further action would be required to repeal or alter the law for all proxy advisors, they remove the cases from their existing procedural timetable and leave uncertainty over when, or whether, they will progress to a final determination.

SB 2337, which took effect on 1 September 2025, requires proxy advisors that "deviate" from acting in shareholders' financial interests to disclose this, particularly where recommendations are influenced by ESG considerations, DEI initiatives, sustainability measures or social credit scores. Two major proxy advisors challenged the law shortly before it came into force, and subsequent court action has meant that the legislation does not currently apply to those firms.

Texas is not alone in pursuing such measures. Similar efforts targeting proxy advisors have emerged in Kentucky and Oklahoma, while AGs in Florida, Iowa, Missouri, Nebraska and West Virginia have also launched legal or regulatory challenges focused on proxy voting advice and the use of ESG-related considerations. As a result, developments in Texas are likely to be watched closely by investors and policymakers across the US.

Texas Attorney General change could reshape approach

The latest developments are significant not only for the litigation itself but also for the broader direction of Texas' anti-ESG campaign. Minerva Analytics has previously engaged on the issue, including through a Texas Public Information Act request concerning SB 2337. At the time, Minerva CEO Sarah Wilson argued that imposing political conditions on the production and distribution of investment research risks undermining freedom of expression in financial analysis and fragmenting oversight of US capital markets.

Wilson recently discussed whether the 'blue tsunami' that saw Democrats convincingly secure control of Congress could bring the prominent US anti-ESG campaign to an end. The analysis identified Texas as one of the most consequential states to watch given the change in AG and the state's central role in anti-ESG litigation and policymaking.

Incoming AG Johnson has reportedly pledged to review and potentially discontinue cases brought by Paxton that he views as politically motivated. Among the matters identified were high-profile actions involving asset managers BlackRock and State Street. He has also been critical of the relationship between Texas officials and Elon Musk's business interests, reportedly suggesting that state support provided to SpaceX "sure looks like" corruption.

The change in political leadership could also affect other recent Texas initiatives, such as the Texas Stock Exchange which looked set to prioritise companies over investors in an attempt to entice redomiciliations and IPOs. How the new administration approaches these issues will help determine whether recent legal setbacks represent a broader shift in Texas policy or simply a change in tactics.

Key takeaways

For shareholders, the key issue is no longer simply the fate of the current lawsuits. The more important question is whether Texas' broader anti-ESG agenda retains momentum following November's elections.

Investors should watch whether Texas continues defending SB 2337 and how the new administration approaches efforts to influence stewardship, proxy voting and shareholder rights. The significance extends beyond Texas, with similar disputes continuing elsewhere in the US and the state's next steps likely to be viewed as an indicator of the durability of state-level challenges to ESG-related investment activity.