proxy advice built on ESG gets a conspicuous warning

The text as introduced · 1,034 words

By: Leach
H.B. No. 4079

A BILL TO BE ENTITLED

AN ACT

relating to the provision of proxy advisory services in connection

with certain entities domiciled in this state.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Title 2, Chapter 21, Business Organizations

Code, is amended by adding Subchapter T to read as follows:

SUBCHAPTER T: PROXY ADVISORS

Sec. 21.1001. DEFINITIONS. In this subchapter:

(1) "Company" means a publicly traded, for-profit

company organized or created under the laws of this state or having

a principal place of business in this state.

(2) "Company proposal" means any proposal made by a

company that is included in a company's proxy statement, including

but not limited to proposals regarding director elections,

executive compensation, corporate transactions and structure,

auditor selections, and other similar measures.

(3) "Investment manager" means a person or company

who, for compensation, provides professional investment management

services. The term does not include:

(A) an employee or member of an advisory

committee of a public retirement system; or

(B) a seller of security interests.

(4) "Proxy advisor" means a person or entity who, for

compensation, provides proxy advisory services to the shareholders

of a company, or to other interested parties, including but not

limited to investment managers.

(5) "Proxy advisory services" includes the provision

of any of the following services in connection with or relating to a

company:

(A) advice or recommendations on how to vote with

regard to measures under shareholder consideration, including

proxy proposals and company proposals;

(B) proxy statement research and analyses,

including with regard to proxy proposals and company proposals;

(C) corporate governance ratings and research or

other similar services;

(D) proxy voting policy development; or

(E) proxy vote administration, including through

the use pf proxy vote management software or other similar

services.

(6) "Proxy proposal" means any proposal made by a

shareholder to a company that is included in the company's proxy

statement.

(7) "Shareholder" includes a shareholder, unitholder,

limited partner, or other equity owner of a company.

Sec. 21.1002. OBLIGATION TO DISCHARGE DUTY BASED SOLELY ON

CERTAIN FINANCIAL INTERESTS. (a) Except as otherwise provided in

this section, a proxy advisor shall provide proxy advisory services

solely in the best financial interest of the shareholders of a

company, based on quantitative, impartial standards, for the sole

purpose of maximizing financial return and control associated

levels of risk.

(b) For purposes of this section, proxy advisory services

are not provided solely in the best financial interest of the

shareholders if based, all or in part, on non-financial factors,

including any commitments, initiatives, policies, targets, or

subjective or value-based standards pertaining to:

(1) environmental, social, or governance (ESG)

investment principles;

(2) diversity, equity, or inclusion;

(3) social credit or sustainability scores; or

(4) membership in, or association with, any non-profit

organization, coalition, initiative, institution, industry, or

similar organization that bases its evaluation or assessment of a

company's value on non-financial factors.

(c) For any proxy advisory services that are not provided

solely in the best financial interest of the shareholders, the

proxy advisor shall:

(1) include a conspicuous warning with the provision

of each such proxy advisory services that they are not made solely,

and may not be, in the best financial interest of the shareholders;

(2) use best efforts to obtain a prompt, written

acknowledgment of the warning required by subpart (a) herein from

each recipient shareholder or other interested party, as

applicable;

(3) immediately notify the company that is the subject

of such proxy advisory services, including full disclosure of all

related proxy advisory services, the basis of the proxy advisor's

advice and recommendations under this subsection, and all

recipients of each such proxy advisory services; and

(4) publicly and conspicuously disclose on the

homepage or front page of the proxy advisor's website that its

proxy advisory services include advice and recommendations that are

not made solely, and may not be, in the best financial interest of

shareholders.

Sec. 21.1003. VOTING RECOMMENDATIONS; CONFLICTS. (a) If a

proxy advisor provides proxy advisory services regarding a company

to multiple shareholders or other interested parties that include

voting recommendations that differ in any material respect

regarding the same proxy proposal or company proposal, the proxy

advisory services shall be considered not to be in the best

financial interest of the shareholders.

(b) For any proxy advisory services described in Subsection

(a), in addition to complying with the requirements of Section

21.1002(c), the proxy advisor shall immediately:

(1) notify each recipient shareholder or other

interested party in writing of the conflicting advice or

recommendations, including full disclosure of all related advice

or recommendations and the proxy advisor's basis for such advice or

recommendations;

(2) notify the company that is the subject of the proxy

advisory services in writing of the conflicting advice or

recommendations, including disclosure of all related

recommendations, the proxy advisor's basis for the recommendations

, and the recipients of each recommendation; and

(3) publicly and conspicuously disclose on the landing

page or front page of the proxy advisor's website that its proxy

advisory services include advice and recommendations that are in

material conflict with proxy advisory services provided to other

shareholders or interested parties.

Sec. 21.1004. VIOLATIONS; DECLARATORY JUDGMENT. An

affected party, including the company that is the subject of the

proxy advisory services, any shareholders of the company, or other

interested parties, may bring an action under Chapter 37, Civil

Practice and Remedies Code, to determine whether a proxy advisor

has committed a violation of this subchapter.

SECTION 2. The changes in law made by this Act apply only to

proxy advisory services rendered on or after the effective date of

this Act. Proxy advisory services rendered before the effective

date of this Act are governed by the law in effect on the date the

contract or other agreement for the services was entered into, and

the former law is continued in effect for that purpose.

SECTION 3. This Act takes effect immediately if it receives

a vote of two-thirds of all the members elected to each house, as

provided by Section 39, Article III, Texas Constitution. If this

Act does not receive the vote necessary for immediate effect, this

Act takes effect September 1, 2025.