Update: Judge Blocks Enforcement of Texas Proxy-Adviser Law
(An update to our Aug. 27 post: “Two Proxy Advisory Firms Suing State Over New Law”.) A U.S. federal judge has blocked enforcement of Senate Bill 2337 (SB 2337)—the new Texas law targeting proxy advisory firms—before it could take effect, according to Reuters.
- Judge Alan Albright, presiding in the Western District of Texas, issued a preliminary injunction on August 29, 2025, halting enforcement against ISS and Glass Lewis. The law had been scheduled to take effect on September 1. According to Gibson Dunn, the injunction applies only to those two firms and only against actions by the Attorney General’s office—it does not cover private lawsuits or other proxy advisors.
- The court set a trial date for February 2, 2026, where the merits of SB 2337 will be fully litigated, according to Gibson Dunn.
Why This Matters: Legal Rationale & Market Implications
Judge Albright’s injunction reflects key constitutional concerns. The court found that SB 2337 likely:
- Violates the First Amendment by compelling firms to present disclaimers that label their advice as "not based solely on shareholders' financial interests," effectively requiring them to express a state-approved viewpoint—found unconstitutional by both ISS and Glass Lewis.
- Is unconstitutionally vague—terms like “non-financial,” “ESG,” and “DEI” are not clearly defined, exposing firms to steep penalties (up to $10,000 per report), according to Gibson Dunn and echoed in Financial Times.
Market and Governance Impact
This injunction safeguards institutional investors—especially Texas public pension systems—from disrupted advisory workflows, providing breathing room to assess and respond appropriately for the 2026 proxy season.
Moreover, critics argue that SB 2337’s asymmetrical treatment—burdening advice opposing management while exempting supportive advice—distorts governance and risks chilling shareholder dissent, as discussed in the Financial Times.
TEXPERS Reminders for Trustees & Administrators
Here’s how trustees can integrate this update into operations:
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Keep pacing and plan — With enforcement on hold, continue to rely on existing proxy advice frameworks—but stay attuned to changes ahead of February 2026.
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Strengthen fiduciary oversight — Whether or not SB 2337 is upheld, emphasize in-house review and alignment with your Fund’s objectives over automatic reliance on proxy recommendations.
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Update proxy voting policies — Ensure clarity around ESG/dei-related decisions and how your fund’s stance reflects long-term financial interests.
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Monitor emerging legal precedents — SB 2337’s fate could influence laws in other states or future guidance at the federal level.
TL;DR at a Glance
| What’s New | Details |
|---|---|
| Injunction Issued | Judge Albright blocked enforcement of SB 2337 on Aug. 29, 2025, before its Sept. 1 effective date. |
| Applies To | Only ISS & Glass Lewis; only enforcement by TX Attorney General. |
| Reasons Cited | Likely First Amendment violation and vagueness of law. |
| Next Steps | Trial set for Feb. 2, 2026; additional developments expected. |
About the Author: Allen Jones is the director of communications and event marketing for TEXPERS. He joined the Association in 2017. Before TEXPERS, he worked in the news media industry, producing content for newspapers, magazines, and online publications and leading newsrooms as an editor and publications manager. [email protected]