Advocates Sue Attorney General Ken Paxton to Stop Legislation that Unlawfully Hamstrings Constitutionally-Protected Freedoms
Austin, TX – Sustainable business advocates and faith-based investment organizations have taken action to block wide enforcement of a new Texas law, known as SB 2337, that would prevent investors from having unrestricted access to expert advice about their investments. The filing argues that SB 2337 violates the free speech guarantees of the First Amendment and is unconstitutionally vague under the due process clause of the Fourteenth Amendment.
The law’s restrictions on advice given to investors as they consider matters affecting their investments are a clear violation of the First Amendment rights of investors and advisors. Today, the Interfaith Center on Corporate Responsibility, United Church Funds, and Ceres filed a lawsuit in the United States District Court for the Western District of Texas seeking to stop Texas Attorney General Ken Paxton from enforcing the unconstitutional law. The coalition is represented by Democracy Forward in the matter.
In late August, a federal judge enjoined enforcement of the law against the two dominant firms in the world of shareholder proxy advising – Glass Lewis and ISS. The law, however, remains in effect for other organizations, and its scope covers a wide range of activities that are related to shareholder advocacy and proxy advising. Among other things, the law exposes non-profit organizations to liability.
The plaintiffs are faith-based and non-profit organizations that, as part of their missions, partner with institutional investors to engage with companies to seek strong long-term financial performance. As part of that work, the plaintiffs take into account environmental and social impacts of company practices, as well as strong corporate governance and other factors, because they believe – correctly – that these factors can be central to the long-term financial success of companies. SB 2337 classifies those factors as “nonfinancial” and places burdensome restrictions on sharing such considerations with shareholders.
“This law restricts the freedom to invest. Hiding the truth about important long-term aspects of their investments is a disservice to investors. Doing so is not just bad for the future of our communities and our planet, but it is also unconstitutional,” said Skye Perryman, President and CEO of DemocracyForward. “Our team at Democracy Forward is honored to work with the Interfaith Center on Corporate Responsibility, United Church Funds, and Ceres to defend the right to speak about investments and exercise shareholder rights in Texas.”
“This attempt to silence investors is an unacceptable attack on the First Amendment and the rights of Americans across the country, all in service to special interests. A robust and dynamic economy requires honest competition and the free exchange of ideas that leaders in Texas are seeking to undermine with this law. For these reasons and in light of our longstanding mission to support faith- and values-based investors, we are grateful for the opportunity to join this lawsuit,” said Josh Zinner, Chief Executive Officer of the Interfaith Center on Corporate Responsibility.
“Our approach to investing has always joined faith and fiduciary duty,” said Rev. Dr. Charles C. Buck, President and CEO of United Church Funds. “Texas’s law is written so vaguely that even ordinary, good-faith stewardship could be misinterpreted as unlawful. Responsible investors shouldn’t have to guess whether sharing our values or our analysis puts us at risk for simply doing our jobs.”
The Democracy Forward legal team working on the case includes Victoria Nugent, Tsuki Hoshijima, and Jennifer Fountain Connolly.
The complaint filed today is available here.
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Democracy Forward Foundation is a national legal organization that advances democracy and social progress through litigation, policy, public education, and regulatory engagement. For more information, please visit www.democracyforward.org.