The Interfaith Center on Corporate Responsibility (ICCR), Ceres and United Church Funds have sued to block Kentucky’s Senate Bill 183 (SB 183), arguing that it unconstitutionally burdens proxy advisors whose recommendations differ from management and uses ambiguous definitions that could bring other shareholder research and advocacy groups within its scope. The groups are seeking a declaration that the law is unconstitutional and an injunction preventing its enforcement.

Plaintiffs challenge restrictions on proxy advisor speech

SB 183 imposes additional disclosure and notification requirements on proxy advisors when voting recommendations differ from management’s position or incorporate what the legislation defines as “nonpecuniary” considerations.

The law defines these as environmental, social, political or ideological interests without a direct and material connection to financial risk or return. In certain circumstances, proxy advisors must also produce economic analyses covering factors including the costs and benefits of a shareholder proposal and its quantifiable impact on shareholder returns.

The plaintiffs argue that these requirements violate First Amendment protections because they burden proxy advisors based on the content of their recommendations while imposing no equivalent obligations on companies, boards or management advocating their own voting positions.

The plaintiffs also argue that mandatory disclosures and economic analyses compel organisations to make statements they do not agree with, rather than simply imposing neutral regulatory requirements.

“We are deeply concerned that the provisions of SB 183 clearly violate fundamental First Amendment principles,” said Josh Zinner, ICCR’s CEO. “A robust and dynamic economy requires honest competition and the free exchange of ideas, which are directly undermined by this law.”

Kentucky Governor Andy Beshear vetoed SB 183 in March after faith-based organisations raised concerns about its implications for First Amendment rights. The Kentucky General Assembly subsequently overrode the veto and the law took effect in July.

Ambiguous definitions could widen scope

The lawsuit additionally challenges the language used to determine who is covered by SB 183.

The plaintiffs argue that terms including “proxy advisor”, “proxy advisory service” and “nonpecuniary interest” are broad or unclear enough that organisations cannot determine with certainty whether the law applies to their activities.

According to the complaint, the definitions could encompass research, ratings, policy guidance and shareholder-engagement activities outside conventional proxy-advisory services.

This creates a distinct issue from the constitutional challenge. While the first argument concerns what Kentucky can require of proxy advisors, the second concerns which organisations can be treated as proxy advisors under the law.

The lawsuit’s plaintiffs represent a significant cross-section of the investor stewardship community. ICCR's membership includes more than 300 institutional investors representing over U$4 trillion in AUM, Ceres convenes investor networks focused on sustainability-related financial risks and United Church Funds manages approximately U$1.4 billion in assets on the behalf of more than 1,200 local churches and faith-based organisations.

Kentucky case adds to wider proxy advisor battle

The challenge follows efforts to regulate proxy advisers in Indiana, Kansas, Oklahoma and Texas, several of which have already faced legal challenges. Most recently, a federal judge granted an injunction against the Oklahoma Attorney General’s enforcement of House Bill 4437 on 31 October, the day before the bill went into effect on 1 November.

The decision prevented Oklahoma from enforcing the bill's key provisions against the two proxy advisors that brought the lawsuit and may signal judicial scepticism toward laws that impose additional requirements on proxy advisors when their recommendations diverge from management. The ruling could also support the Kentucky plaintiffs' challenge by indicating that similar disclosure requirements may face significant First Amendment scrutiny.

Pressure also continues to grow at federal level. The SEC’s Division of Examinations recently identified investment advisors’ use of proxy advisory firms as a focus of its fiscal year 2027 examination priorities, following a December 2025 executive order from Donald Trump directing the agency to review rules and guidance relating to proxy advisors.

This all comes against the backdrop of a wider battle for preserving shareholder rights. ICCR has announced that nearly 100 institutional investors representing US$2.3 trillion in assets under management had signed an open letter urging companies to oppose the SEC’s proposed rescission of Rule 14a-8, which underpins the shareholder proposal process.

Restrictions on advice risks weakening investors’ voices

For institutional investors, the stakes extend beyond regulation of proxy advisors to the research and engagement tools that support independent voting and board accountability. Additional burdens on advice that challenges management, combined with uncertainty over which organisations are covered, could constrain stewardship activity beyond the proxy-advisory sector. The Kentucky case will therefore be an important test of investors’ continued access to diverse analysis and their ability to exercise shareholder rights.