Texas Attorney General Ken Paxton announced that he has launched an investigation into proxy advisory firms Glass Lewis and Institutional Shareholder Services (ISS), alleging that the companies potentially misled investors by recommending they vote for companies implementing DEI and sustainability policies.

In a statement announcing the investigation, Paxton said that the firms were “issuing voting recommendations that advance radical political agendas rather than sound financial principles,” adding that “neither Glass Lewis nor ISS seem to support their radical guidelines with any economic analysis, only a word salad of corporate lingo.”

Notably, the new investigation follows a preliminary injunction issued by a federal judge last month, blocking the enforcement of a Texas law aimed at restricting how Glass Lewis and ISS could advise on ESG practices, ruling that the law likely violated the firms’ First Amendment rights.

In its new announcement, the AG’s office claimed that Glass Lewis’ and ISS “routinely issue proxy voting recommendations in conflict with the best financial interests of their fiduciaries,” citing as examples their instructions for investors to vote for companies “making management decisions to implement DEI, gender-based hiring quotas, and aggressive climate activist policies.”

Paxton said:

“Proxy advisors play a massive role in shaping corporate governance decisions in our country, affecting tens of billions of dollars. My office has zero tolerance for these woke corporations smuggling radical, liberal ideology into the companies they advise and into the entirety of America’s financial system.”

In a statement provided to ESG Today, a Glass Lewis spokesperson said that the AG’s announcement “mischaracterizes Glass Lewis’ advice and business practices,” and that the firm’s recommendations “are grounded in decades of research on promoting long-term shareholder value.”

The spokesperson added:

“Glass Lewis provides independent, research-driven proxy advice exclusively to highly sophisticated institutional investors—not to the general public—who select the considerations important to them based on their fiduciary duties, investment strategies, and risk tolerances. Our clients are not in any way misled. Indeed, a federal district court in Texas has enjoined the Attorney General from targeting Glass Lewis for its constitutionally protected speech.”