Faith-oriented nonprofits are suing Attorney General Ken Paxton in federal court over a new state law they argue infringes on their ability to make investment decisions that are grounded in their values and religious beliefs.
Senate Bill 2337 approved earlier this year, restricts the advice that firms and individuals known as proxy advisors can give to shareholders. Lawmakers complained that some advisors tell investors to make decisions based on environmental, social justice or diversity and inclusion goals.
That’s a problem for state leaders who made extensive efforts to eliminate DEI programs. The new Texas law says proxy advisors may provide guidance based only on financial considerations — or provide a detailed explanation when they issue recommendations for “nonfinancial reasons.”
The lawsuit, filed last week in federal district court in the Western District of Texas, was brought by Interfaith Center on Corporate Responsibility and United Church Funds, which is associated with the United Church of Christ. For the two groups, their values and religious beliefs are integral to investment-related decisions, the lawsuit says.
The lawsuit’s plaintiffs also include a secular nonprofit — Ceres, Inc. — which advocates for sustainability as a financial imperative for companies.
“Central to an investor’s rights is the right to invest consistent with one’s goals, investment discipline, and values—and to gather information to meet these investment goals,” the filing reads. “Yet SB2337 penalizes firms and nonprofit organizations for providing this type of information and advice when it is inconsistent with the state’s belief.”
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United Church Funds provides investment services to over 1,100 local churches, judicatories, denominational ministries, seminaries, and health care institutions affiliated with the United Church of Christ. Its mission, according to the lawsuit, is helping the faith community steer financial resources in ways that align with their values, and the investment work is an extension of the organization’s Christian values.
United Church Funds president and CEO the Rev. Dr. Charles Buck said that “responsible investing” is not political for the organization, and that it has been a part of theological and ethical grounding for generations. He shared concerns that the law could be used to disrupt routine investor activities, including explaining how environmental or social factors can affect long-term financial performance or receiving data.
“Our clients, who are mostly local churches, expect that we will steward their assets in ways that reflect their faith values,” Buck wrote. “Such as caring for creation, upholding the rights and dignity of workers, ensuring responsible corporate governance, and working for long-term financial sustainability.”
The law is “monstrously broad” and “confusing,” said Interfaith Center on Corporate Responsibility Senior Policy Advisor Timothy Smith. His organization has a history of coalescing people across faith traditions to invest in a “socially responsible,” manner. The founding congregations worked on an anti-apartheid campaign against South Africa starting in the 1970s.
The Interfaith Center on Corporate Responsibility isn’t forcing its values on companies, he says, but many of these fields recognize addressing issues like climate change are relevant to business interests, and so they make commitments.
“It’s not like we in the faith community would see it as a moral and environmental issue,” Smith said. “But they see it as smart business to address climate change or to include a wide range of the American population to work for them, so they’ve committed to diversity.”
The ICCR’s press release on this lawsuit is here, and it includes a link to the lawsuit. A pair of proxy advisors filed their own lawsuit against SB2337 in late July. Both are First Amendment complaints, with this one having an obvious religious freedom angle. As with the Ten Commandments litigation, these seem like slam dunks to me, but you never know what the courts will do.