Four US States Sue Proxy Advisor ISS Over ESG and DEI Policies in Coordinated Anti-ESG Legal Action

The Attorneys General of Texas, Nebraska, Iowa and West Virginia have filed lawsuits against proxy advisory firm Institutional Shareholder Services, alleging that the company violated consumer protection and deceptive practices laws by promoting ESG and DEI-related policies in its advice to investors. The suits follow a similar action filed last year by Florida against ISS and its peer Glass Lewis, and form part of a broader and accelerating pattern of anti-ESG political and legal activity in the United States targeting the influence of proxy advisory firms over corporate governance. ISS has stated that it believes the allegations lack merit and will vigorously defend against them.

 

The Allegations and Legal Theories

 

The core claim across the four lawsuits is that ISS misled investors by marketing its proxy advice as objective while incorporating DEI, ESG and climate-related considerations that the Attorneys General argue were not tied to financial analysis or investor returns. This framing attempts to establish a deception theory under state consumer protection law, arguing that the gap between the objective independence ISS claims and the politically oriented advice it allegedly delivers constitutes a form of false advertising or unfair practice. If successful, the theory could expose proxy advisers to state-level enforcement liability for the content of their research and recommendations in ways that go well beyond existing federal securities regulation.

Each of the lawsuits also incorporates conflict of interest allegations, including claims that ISS provided ESG consulting services to companies that it was simultaneously covering in research reports delivered to institutional investor clients. This dual-service model has been a recurring point of controversy for proxy advisory firms and was previously examined by the Securities and Exchange Commission in its proxy adviser rulemaking processes. The suits also allege that ISS failed to disclose that it is owned by ESG activists, a characterisation that ISS disputes given that the firm is jointly owned by Deutsche Börse, an international exchange organisation, and General Atlantic, a growth equity investor.

 

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Political Context and the Broader Anti-ESG Campaign

 

The lawsuits sit within a broader and intensifying campaign by Republican politicians to constrain the influence of ESG considerations in the United States financial system. In December, President Trump issued an executive order directing several federal agencies to increase oversight of ISS and Glass Lewis over their support for ESG and DEI issues. SEC Chair Paul Atkins has separately warned of plans to examine and propose actions focused on what he described as the weaponisation of shareholder proposals by politicised shareholder activists, signalling that federal regulatory scrutiny of proxy advisers is also intensifying.

Texas Attorney General Ken Paxton said ISS has enormous influence over how billions of dollars are invested and managed and has abused that influence to push what he characterised as woke ideology, resulting in financial advice he described as disguised progressive shifts. The language reflects the political framing that has become characteristic of anti-ESG litigation in the United States, seeking to recast sustainability considerations as ideological overreach rather than legitimate investment factors. The coordinated filing across four states simultaneously suggests a deliberate strategy to maximise legal and political pressure on the proxy advisory sector.

 

ISS's Response and Implications for Proxy Advisers

 

An ISS spokesman said the company believes the allegations lack merit and will vigorously defend against them, adding that ISS's role is to provide sophisticated institutional investor clients with independent, timely and expert research and vote recommendations based on the proxy voting policies the clients have selected or customised based on their determination of the best interests of the beneficiaries they serve. This response positions the firm's ESG-integrated advice as a client-driven service rather than as an independently imposed ideological agenda. The distinction is significant because it places responsibility for the decision to incorporate ESG factors with the institutional investors who have chosen to do so rather than with ISS itself.

The lawsuits raise important questions about the legal boundaries of proxy advisory services and the extent to which state consumer protection law can reach the investment research and governance recommendation activities of nationally operating firms. If the suits proceed to trial, they could generate significant legal precedent about the permissible scope of ESG integration in financial services and the disclosure obligations of proxy advisers. The litigation also creates operational uncertainty for ISS and Glass Lewis as they navigate an environment of simultaneous federal and state-level scrutiny.

 

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Outlook for ESG Integration in US Corporate Governance

 

The four-state ISS litigation represents an escalation in the legal and political contestation of ESG's role in United States corporate governance, extending the anti-ESG campaign from asset managers and pension funds into the advisory infrastructure that shapes institutional voting behaviour. If the suits succeed in establishing state liability for ESG-integrated proxy advice, the consequences could extend well beyond ISS to reshape how proxy advisers, investment consultants and financial research providers approach sustainability integration. This would represent a significant structural shift in the governance ecosystem that has supported the growth of ESG investing over the past decade.

Whether the lawsuits achieve their stated objectives or primarily serve as political signalling will depend on the legal merits of the consumer protection theories advanced and the willingness of courts to extend state deceptive practices liability into the domain of investment advisory services. Institutional investors that use ISS advice will be monitoring the litigation closely, both for its direct implications for proxy advisory regulation and for what it signals about the trajectory of ESG governance in the United States political environment. The outcome of these cases is likely to be one of the more consequential developments in the broader ESG regulatory landscape over the coming years.