Proxy Advisors Escape Scrutiny in Texas ESG Inquiry

Senator Paul Bettencourt (R) moved to subpoena investment giants BlackRock and State Street, demanding they testify before the Texas Senate State Affairs Committee regarding their investment practices and policies. The move is part of an ongoing effort by Texas lawmakers to scrutinize ESG-aligned investment strategies and advance proxy advisory reform, particularly concerining the influence of firms like Institutional Shareholder Services (ISS) and Glass Lewis.

Absent from the list of subpoenaed witnesses were proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis, despite their central role in shaping shareholder votes across the country. Together, ISS and Glass Lewis control nearly 97% of the proxy advisory market. Glass Lewis, in particular, supports ESG and diversity, equity, and inclusion (DEI) proposals roughly 40% of the time.

Although ISS submitted written testimony to the Senate committee, neither ISS nor Glass Lewis were required to testify in person. Their absence raised further questions, particularly given the significant role these firms play in influencing how trillions of dollars in public and private investments are voted.

Critics note that if Congress considers their influence substantial enough to justify a dedicated hearing, the Texas Senate should expect them to appear and explain their practices.

The omission is notable, especially as two proxy advisory bills, SB 1057 and SB 2337, are currently under consideration in the Texas Legislature. One of those, SB 2337, is authored by Senator Bryan Hughes and was reviewed by the same Senate State Affairs Committee.

With state legislation on the table directly targeting the influence and operations of firms like ISS and Glass Lewis, stakeholders argue that both companies should appear before lawmakers to clarify whether they are making any substantive changes to their voting guidance and recommendations.

At a recent U.S. House Financial Services Subcommittee hearing titled “Exposing the Proxy Advisory Cartel: How ISS & Glass Lewis Influence Markets,” Representative Ann Wagner (R-MO) criticized the firms’ growing sway.

“These firms are not neutral observers,” Wagner said. “They are for-profit businesses that often sell consulting services to the very companies they evaluate – sometimes with clear conflicts of interest.”

Glass Lewis reportedly circulated an internal memo ahead of the hearing, hinting at possible shifts in its approach to progressive shareholder proposals. Some observers see the timing as a superficial attempt to deflect political pressure, rather than a commitment to meaningful reform.

"The threat to Texas pension and retirement funds doesn’t disappear if only the asset managers are replaced," said one committee staffer. "As long as proxy advisors remain unchallenged, they continue to exert massive influence over public investments.”

TexasPolitics reached out to Senators Judith Zaffirini, Lois Kolkhorst, Bettencourt and Hughes, for comment on why Glass Lewis was not called to testify, particularly considering the legislation being considered. Questions were also raised about whether proxy firms should be compelled to explain their practices in Texas, just as they have in Washington.

None of the senators have responded to our request for comment.