Dive Brief:
- Sustainability nonprofit Ceres and faith-based investors the Interfaith Center on Corporate Responsibility and United Church Funds filed a federal lawsuit against the state of Kentucky last week, challenging a law that targets proxy advisers for considering nonpecuniary factors.
- The lawsuit was filed on Friday in U.S. District Court for the Eastern District of Kentucky, naming Kentucky Attorney General Russell Coleman and alleging that the state’s Senate Bill 183 violates the group’s First Amendment rights.
- The law, which passed during the state’s 2026 legislative session, would require proxy advisers who take into account nonpecuniary factors including ESG considerations to make public disclosures claiming that the advice “is not being provided solely in the interest of shareholders.”
Dive Insight:
Kentucky passed SB 183 in March, and the law was vetoed on March 27 by Kentucky Gov. Andy Beshear, a Democrat. Beshear said in the veto that the decision came “at the request of faith-based organizations that believe it infringes on their First Amendment rights.” The state’s legislature overrode Beshear’s veto on March 31.
The law considers any proxy advice — including on proxy voting or director nominations — that “is wholly or partly based on, or otherwise takes into account” any non-monetary factors as “not solely in the interest of shareholders.”
The lawsuit is seeking to have SB 183 ruled unconstitutional, in violation of the First and Fourteenth Amendment, and have an injunction placed on it to prevent enforcement. The lawsuit, filed Oct. 29, alleges SB 183 was “aimed at suppressing ideas in the investment community” and “regulates speech, explicitly discriminating based on viewpoint and content and compelling covered speakers to say things they don’t believe.”
“Institutional investors do not need protection from the free flow of proxy-voting information,” the lawsuit says. “But the Kentucky General Assembly expressly intended both to make it harder for shareholders to speak up against corporate leadership’s positions and to suppress shareholder requests that companies consider important issues affecting long-term performance.”
ICCR — which is leading the lawsuit — Ceres and UCF are being represented by litigation nonprofit Democracy Forward and law firm Tachau Meek PLC, according to a Democracy Forward press release.
“Shareholders have a right to ask questions, challenge corporate leadership, and make investment decisions guided by their values and their understanding of long-term financial risks,” Democracy Forward President and CEO Skye Perryman said in the Oct. 30 release.
In addition to alleging First Amendment violations, the lawsuit alleges SB 183 runs afoul of the Fourteenth Amendment for being unconstitutionally vague.
“We are deeply concerned that the provisions of SB 183 clearly violate fundamental First Amendment principles,” ICCR CEO Josh Zinner said in the release. “A robust and dynamic economy requires honest competition and the free exchange of ideas, which are directly undermined by this law.”
The lawsuit is the latest litigation looking to overturn state laws targeting proxy advisory advice. Institutional Shareholder Services and Glass Lewis — the two largest proxy advisors by market cap — have, either separately or together, sued and stopped similar laws from taking effect in Texas, Kansas, Indiana and Oklahoma over the past two years.
