Institutional Shareholder Services (ISS) is the world's largest proxy advisory firm, holding close to half of the global proxy advisory market. Institutional investors, including pension funds, asset managers, and mutual funds, use its research and recommendations to vote on shareholder resolutions, board elections, executive pay, climate proposals, and corporate governance matters. The firm's reach is substantial: because many large investors outsource portions of their proxy voting analysis to ISS, its recommendations carry influence across companies and sectors far beyond what the firm's own assets would suggest.
The lawsuits filed on Wednesday, May 20 allege ISS violated consumer protection and deceptive trade practice laws by promoting ESG and DEI frameworks within its benchmark proxy recommendations while presenting those recommendations as objective and financially grounded. Florida filed a similar suit against ISS and rival firm Glass Lewis last year. The four actions filed this week are coordinated under what the participating attorneys general are calling the Multistate Proxy Advisor Coalition.
What the Lawsuits Specifically Allege Beyond the ESG Framing
The allegations go beyond the general claim that ESG was embedded in recommendations. Nebraska Attorney General Mike Hilgers's suit contends that ISS adopted broad ESG policies in its main benchmark products without analyzing their effect on shareholder value or company performance. The West Virginia complaint, filed by Attorney General JB McCuskey, alleges that from 2022 through early 2025, ISS recommended votes against corporate board members based on race and ethnicity, a policy the suit argues was illegal and was not disclosed to clients. ISS ended that practice following a 2025 executive order.
Both lawsuits also allege that ISS operated a parallel consulting business, selling ESG advisory services to the same companies it was rating for proxy purposes, without fully disclosing that conflict of interest to clients who were paying for independent analysis. The suits further allege that ISS coordinated with activist organizations in developing its recommendations, and that its parent company owners, Deutsche Börse AG and General Atlantic, were themselves committed ESG advocates, creating additional undisclosed conflicts.
Where This Fits in the Broader Federal and State Campaign
The state lawsuits are arriving alongside federal pressure that has been building since late 2025. President Trump signed an executive order in December 2025 directing federal regulators to scrutinize the proxy advisory industry and calling out ISS and Glass Lewis by name for using their influence to advance what the order described as politically motivated agendas. In November 2025, the Wall Street Journal reported that the Federal Trade Commission (FTC) had opened an antitrust investigation into how proxy advisors steer investors on contested topics.
Texas has been in litigation with ISS since 2025 over a state law, Senate Bill 2337, requiring proxy advisors to disclose when recommendations rely on nonfinancial considerations. ISS and Glass Lewis challenged that law on First Amendment grounds and obtained a preliminary injunction blocking enforcement. Texas Attorney General Ken Paxton hired former U.S. Attorney General William Barr to lead the state's litigation against ISS. The new consumer protection lawsuit filed this week is separate from that ongoing First Amendment dispute.
ISS Has Denied the Allegations and Indicated It Will Fight
ISS has stated the claims lack merit and that it intends to defend itself vigorously in court. The firm maintains that its recommendations are designed to support shareholder interests and informed governance decisions, and that clients voluntarily choose which ISS products and methodologies to use. That argument is likely to be central to ISS's defense: that institutional investors with sophisticated legal and compliance teams entered into service agreements with full knowledge of what ISS offered, undermining the deception claims at the core of the lawsuits.
The outcome of these cases, which will likely take years to resolve, has direct implications for how proxy advisory firms disclose their methodologies, how institutional investors document their fiduciary decision-making, and whether state-level consumer protection law can reach the shareholder voting infrastructure that shapes corporate governance at publicly traded companies.
