Four states with Republican attorneys general are suing the SEC over a new agency rule, adopted in November, that requires increased disclosure from investment managers and funds on their proxy votes, including executive compensation.
Utah, Texas, Louisiana and West Virginia filed the lawsuit Tuesday in the 5th U.S. Circuit Court of Appeals, stating the rule "would increase activism, administrative costs, and shareholders' risk of loss," according to a news release from the office of Utah Attorney General Sean D. Reyes.
The rule requires institutional investment managers to disclose how they vote on executive compensation — also known as "say-on-pay" matters — and makes changes to Form N-PX that mandates enhanced information on proxy votes from registered funds, including mutual funds and exchange-traded funds.
The SEC originally adopted a requirement in 2003 for registered funds to use Form N-PX each year to disclose how they voted companies' shares. However, the new amendments require funds to categorize the votes they cast; standardize the way the voting is reported; disclose how securities lending activities impacted their voting; and require managers to disclose say-on-pay votes, as mandated under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
The Utah attorney general's office said in the news release that the required information would be used by investors to advance politicized proposals, specifically referencing environmental, social and governance investing.
Across the United States, many Republican officials and lawmakers have spoken out against ESG investing and targeted the SEC for its rulemaking. Three Republicans in Congress just sent a letter to SEC Chairman Gary Gensler on Wednesday demanding answers on the agency's controversial climate disclosure proposal.
An SEC spokesperson declined to comment on the lawsuit.