Texas AG probes proxy advisers Glass Lewis, ISS amid ESG backlash

Sept 16 (Reuters) - Texas Attorney General Ken Paxton on Tuesday launched an investigation into proxy advisers Glass Lewis and Institutional Shareholder Services, alleging they may have misled institutional investors and public companies.

Glass Lewis and ISS, the two largest U.S. proxy advisory firms, analyze shareholder proposals and corporate governance issues and provide voting recommendations to institutional investors ahead of annual meetings.

Their guidance can influence votes on board elections, executive compensation and environmental or social resolutions.

"Proxy advisors play a massive role in shaping corporate governance decisions in our country, affecting tens of billions of dollars," Paxton said in a statement.

He said his office issued civil investigative demands to both firms to determine whether they violated Texas consumer-protection laws, including rules on disclosing material facts.

"Attorney General Paxton's press release mischaracterizes Glass Lewis's advice and business practices," a Glass Lewis spokesperson told Reuters in a statement, adding that the firm provides advice to "highly sophisticated institutional investors."

"Our clients are not in any way misled."

ISS did not immediately respond to Reuters' request for comment.

REPUBLICAN PUSH AGAINST ESG

The investigation comes amid a broader Republican campaign against ESG, with critics arguing companies should prioritize shareholder returns over social or environmental goals.

Several companies this year have scaled back or ended diversity, equity, and inclusion programs with U.S. President Donald Trump having made eliminating such programs a priority.

Texas has been at the forefront of this pushback. In August, a federal judge issued a preliminary injunction blocking the Republican-run state from enforcing a first-of-its-kind state law restricting Glass Lewis and ISS from advising shareholders on ESG practices.

"Indeed, a federal district court in Texas has enjoined the Attorney General from targeting Glass Lewis for its constitutionally protected speech," the Glass Lewis spokesperson added.

Both firms have long drawn criticism for their influential voting recommendations, traditionally from corporate executives, but their guidance remains widely used by institutional investors.

Supporters say the advisers help investors navigate complex governance issues, distill lengthy filings and increase accountability on corporate boards.