Key Takeaways
Four Republican Attorneys General are suing Institutional Shareholder Services, claiming the influential proxy adviser violated consumer protection laws by falsely advertising its investment advice as objective.
“Instead of providing its clients objective and impartial investment advice, as advertised, ISS has provided and continues to provide advice tainted by ISS’ own ESG ideological considerations untethered to its clients’ best financial interests,” the complaint by Nebraska Attorney General Mike Hilgers alleges.
The lawsuits, filed by West Virginia, Iowa, Texas, and Nebraska, accuse ISS of coordinating with environmental, social, and governance (ESG) activists such as Climate Action 100+ and Ceres while recommending votes against company directors who it claims have not done enough to reduce CO2 emissions. The complaints allege ISS failed to disclose that its advice was guided by its “own ideological causes and secretly rendered in close coordination with ESG activists.”
The legal action highlights the significant influence proxy advisers hold over corporate governance and could force greater transparency if successful. The challenge comes as ISS itself is litigating against state-level disclosure requirements, creating a multi-front battle over the firm’s regulatory oversight and business practices.
The lawsuits claim ISS’s voting policies are driven by its owners’ interests. The firm’s principal owner, Deutsche Boerse AG, is a member of the Net Zero Financial Service Providers Alliance, a coalition committed to achieving net-zero greenhouse gas emissions by 2050. The suits also note that ISS pitches ESG consulting services to companies, a practice the complaints liken to “a health inspector selling cleaning services on the side.”
This legal challenge from state governments is occurring as ISS is actively fighting disclosure laws in other states. In Indiana, ISS has sued to block a law, H.B. 1273, that would require proxy advisors to disclose when their recommendations are not based on a financial analysis. According to a complaint filed by ISS, the firm argues the Indiana law violates the First Amendment by targeting anti-management recommendations and compelling speech.
This multi-state legal challenge could diminish the power of ESG-focused proxy recommendations if successful. Investors will be watching for the outcome of ISS's motion for a preliminary injunction in its case against Indiana, with a decision expected before that law's July 1, 2026 effective date.
This article is for informational purposes only and does not constitute investment advice.
