This story first appeared in the Kentucky Lantern, an outlet of States Newsroom. It's republished here as part of the Appalachian News Exchange reporting partnership to strength Kentucky journalism.
Investor groups are challenging a Kentucky law they argue would make it harder for shareholders to push companies to consider climate change, diversity and other issues in their policies.
The plaintiffs claim the law is unconstitutional, in part because it impairs their right to speak freely under the First Amendment to the U.S. Constitution.
The law at issue is Senate Bill 183, which was approved in the 2026 session and deals with proxy advisors.
Publicly-traded companies have boards that set policy, but shareholders — who own a piece of the business — can make proposals on how a company should be run.
That can be a mechanism for submitting proposals at odds with, or in addition to, policies a company board and managers have set.
Examples could include submitting proposals for a company to move away from the use of fossil fuels such as coal, or efforts to get companies to incorporate diversity, equity and inclusion measures in their policies.
Proxy advisors provide research and guidance to blocks of investors on voting on such proposals.
SB 183 says a proxy advisory service is “not solely in the interest of shareholders” if it is based on or takes into account non-financial factors, such as “an environmental, social, political, or ideological interest” not directly connected to the risk or return on an investment.
The law also says a service is not solely in the interest of shareholders if it recommends a proposal at odds with a recommendation from the company board and does not provide a complex economic analysis of the proposal.
The law also requires proxy advisors to notify all shareholders that the proposal was not being provided solely in their interest and the advice put other objectives ahead of their financial interest, “including sacrificing investment returns or undertaking additional investment risk” to promote non-financial interests, such as diversity or environmental concerns.
Proxy advisors could be penalized under the state’s consumer-protection law for violations.
SB 183 passed the Senate 32 to 6 and the House 81 to 6.
Supporters argue the law is aimed at making sure company shareholders have adequate information when voting on proposals.
“It’s about transparency for proxy advisory firms that influence billions of dollars in shareholder votes, including decisions that affect Kentucky pensions and retirement savings,” state Sen. Matt Nunn, R-Sadieville, said in a news release in March. “All it says is if you’re giving advice that moves that kind of money, folks deserve to know whether it’s based on financial facts or something else.”
Nunn said there are many nonprofits set up “specifically to avoid accountability while pushing ideological agendas,” such as diversity, equity and inclusion, through corporate decision-making.
“Kentuckians work too hard to have their retirement investments influenced without accountability,” Nunn said in the release.
Nunn and Republican Sens. Robby Mills of Henderson and Steve Rawlings of Burlington sponsored the bill.
Gov. Andy Beshear, a Democrat, vetoed it, saying it was unconstitutional because it would expose faith-based investors to extra disclosure and costly litigation and “infringe on their right to exercise their faith in engaging with companies.”
Republican supermajorities in the House and Senate easily overrode Beshear’s veto.
Three organizations filed a lawsuit in federal court Oct. 29 seeking to strike down the law. The plaintiffs are the Interfaith Center on Corporate Responsibility (ICCR) and United Church Funds, both based in New York, and Ceres, a nonprofit based in Boston.
ICCR says it has more than 300 institutional investors as members, more than half of them faith-based, but also including asset-management companies, pension funds and others.
They use their shares in companies to call for improved environmental and social concerns, including through shareholder proposals, the coalition says.
United Church Funds, which says it provides investment services to more than 1,000 churches and faith-based organizations, files shareholder resolutions at companies in which members invest, while Ceres works with investors to push measures that include reducing fossil-fuel emissions.
They argue in the lawsuit that SB 183 violates their First Amendment rights in a number of ways.
For example, the law discriminates against the point of view of shareholders who file a proposal that doesn’t agree with the position of a company board, always favoring the company’s position, the complaint argues.
The requirement to provide an economic analysis of shareholder proposals, even though the company board would not have to provide a similar analysis of its proposals, is onerous and discriminatory, according to the lawsuit.
Further, the provision for proxy advisors to notify shareholders that a proposal was not solely in their interest would force the advisors to say something they don’t believe, the complaint says.
“Each Plaintiff’s view about financially prudent investing accounts for interests Kentucky likely construes as ‘political’ or ‘ideological,’ including environmental, social, and governance interests,” the lawsuit says. “In Plaintiffs’ view, all these interests are intimately connected to long-term financial performance.”
The law puts the state’s weight behind corporate leadership and suppresses speech from others, the lawsuit claims.
The legislature “expressly intended both to make it harder for shareholders to speak up against corporate leadership’s positions and to suppress shareholder requests that companies consider important issues affecting long-term performance,” according to the lawsuit.
The lawsuit says the state can disagree with the view that risks related to environmental sustainability have financial effects on the bottom line of companies, but isn’t allowed to “regulate Plaintiffs’ speech out of the marketplace or compel Plaintiffs to speak in furtherance of Kentucky’s views about these issues.”
The lawsuit also claims that terms and requirements in the law are so vague that proxy advisory services would have trouble complying.
Attorney General Russell Coleman is the defendant in the lawsuit.
In addition to seeking to strike down SB 183, the lawsuit seeks an injunction barring Coleman from enforcing it and an award of attorney fees for lawyers for the three organizations.
Attorneys with Democracy Forward — a progressive legal group that one publication described as the “nerve center of the legal opposition to (President Donald) Trump" — filed the lawsuit along with Amy D. Cubbage, an attorney with Tachau Meek in Louisville and former general counsel to Beshear.
Skye Perryman, president and CEO of Democracy Forward, said in a statement shareholders have a right to challenge corporate leadership and make investment decisions based on their values and understanding of financial risks.
“Attorney General Russell Coleman cannot use the power of the state to silence viewpoints it disagrees with or force organizations to disavow their own beliefs,” Perryman said.
Nunn responded to the lawsuit in a statement issued Monday, saying the law “requires transparency and accountability on the part of proxy advisors doing business in Kentucky in order to protect our Kentucky investors from unfair, false, misleading or deceptive trade practices.”
“I trust that Attorney General Coleman will protect the interests of our Kentucky investors and vigorously defend the constitutionality of Senate Bill 183, which passed by wide margins in both the House and the Senate,” Nunn said.
Coleman’s office did not respond to a request for comment last week.
