Fifth Circuit Upholds (For Now) SEC Rules Concerning ESG Proxy Votes

On May 10, 2024, the Fifth Circuit rejected an attempt by the States of Texas, Louisiana, West Virginia, and Utah to invalidate an SEC rule "requiring funds to disclose their votes on environmental, social, and governance (ESG) matters." Specifically, the rule in question requires that funds "categorize [proxy] votes by subject matter," and identifies fourteen categories, of which "four . . . are ESG-focused." A concern voiced by critics is that this type of categorization of proxy vote could ultimately discourage investment in industries, such as fossil fuel extraction, that are disfavored by ESG-focused investors.

Significantly, the grounds for this decision--by a court known to be conservative--may discourage similar lawsuits in the future, as the Fifth Circuit ruled that the states had failed to establish standing--i.e., a right to pursue their claims in this forum. In particular, the Fifth Circuit focused on the lack of injury--that the States had offered