In this week’s edition of Economy and Society:
- Large pension funds oppose SEC climate rule rescission
- Texas sues Glass Lewis over proxy advice disclosures
- Hawaii enacts clean fuel standard targeting 50% carbon cut by 2045
- U.S. sustainable funds post first inflows in four years
In Washington, D.C.
Large pension funds oppose SEC climate rule rescission
What’s the story?
Several large public pension funds filed comments opposing the Securities and Exchange Commission's (SEC) proposal to rescind its 2024 climate-risk disclosure rule. They wrote that eliminating standardized greenhouse gas emissions reporting would increase costs for investors and reduce the quality of information available for investment decisions.
The SEC proposed rescinding the rule on May 29, 2026, and the public comment period ended on Aug. 3. SEC Chair Paul Atkins said the rule was "a dramatic overreach of the Commission's statutory authority and, independently, unsound as a matter of policy."
The California Public Employees' Retirement System (CalPERS), the nation's largest public pension fund with $637.1 billion in assets, said that rescinding the rule would "fundamentally alter the cost-benefit equation by shifting the financial burden directly onto investors." It also said that eliminating a single federal standard would leave companies and investors navigating a patchwork of state disclosure requirements.
The pension systems overseen by the New York City and Maryland comptrollers also opposed the proposal. New York City Comptroller Mark Levine (D) said the proposal would make climate-risk analysis "more costly, less reliable, and less comparable across companies."
Seattle's public employee retirement system, Sweden's AP7, and Canada's University Pension Plan Ontario also submitted comments opposing the proposal.
Why does it matter?
The comments illustrate that support for standardized climate disclosures extends beyond environmental organizations to include some of the world's largest institutional investors. Rather than arguing the rule advances environmental policy, the pension funds said consistent disclosures help investors assess financial risk and fulfill their fiduciary duty to beneficiaries.
University Pension Plan Ontario said rescission would move the U.S. "further away from the emerging global baseline for climate-related financial disclosure."
What’s the background?
The SEC initially proposed climate disclosure requirements on March 21, 2022, under then-Chair Gary Gensler. On March 6, 2024, the SEC commissioners voted 3–2 along party lines to adopt the rule. The rule immediately faced multiple legal challenges, and the SEC paused its implementation while the litigation proceeded before the Eighth Circuit Court of Appeals.
After President Donald Trump (R) took office in January 2025, the SEC reversed course. Acting Chair Mark Uyeda asked the Eighth Circuit Court of Appeals to delay oral arguments while the agency reconsidered its position. On March 27, 2025, the SEC voted to end its defense of the rule. In September 2025, the Eighth Circuit ordered the SEC to formally rescind, repeal, modify, or resume defending the rule.
In the states
Texas sues Glass Lewis over proxy advice disclosures
What’s the story?
Texas Attorney General Ken Paxton (R) sued Glass Lewis in Texas District Court for Collin County on July 29, 2026, alleging deceptive trade practices. Glass Lewis is a San Francisco-based proxy advisory firm that advises institutional investors how to vote at corporate shareholder meetings.
According to the complaint, the firm advises more than 1,300 investment managers whose clients collectively manage $40 trillion in assets across 100 markets. Glass Lewis representatives attend more than 30,000 shareholder meetings each year.
Paxton alleges Glass Lewis advertises its proxy voting advice as objective while actually weighing environmental, social, and governance (ESG) factors. Paxton said that Glass Lewis "provides advice influenced by its own Environmental, Social, and Governance ('ESG') ideological considerations, apart from its clients' best financial interests."
Paxton's complaint also says that Glass Lewis's proxy voting guidelines "call for every board to establish a ‘nominating and governance committee’ that is ‘reasonably diverse.'" Paxton argues this shows Glass Lewis pushes its own policy views rather than sticking to financial analysis.
Why does it matter?
The lawsuit extends a legal fight between Republican state officials and the two firms that dominate the proxy advisory market. Glass Lewis and Institutional Shareholder Services (ISS) together handle more than 90% of that market, giving them influence over how institutional investors vote at public companies.
This suit differs from the state disclosure-mandate laws that federal courts blocked in Kansas and Indiana in June 2026. Those laws required proxy advisors to disclose specific information and were struck down on First Amendment grounds. Paxton's suit instead relies on existing consumer protection law. Paxton alleges the firm is violating the Texas Deceptive Trade Practices Act, a state law amended in 2025 that requires disclosures for proxy voting advice based on non-financial factors, including ESG and diversity, equity, and inclusion (DEI) considerations.
Glass Lewis has denied the allegations, saying they “mischaracterizes Glass Lewis’ advice and business practices,” and that its recommendations “are grounded in decades of research on promoting long-term shareholder value.”
Paxton is the Republican nominee for U.S. Senate in Texas running against Democratic State Rep. James Talarico in the November 2026 election.
What’s the background?
Paxton announced an investigation into Glass Lewis and ISS in September 2025. Glass Lewis and ISS separately sued Texas that year over SB 833, a law requiring proxy advisors to disclose when recommendations rest on non-financial factors like ESG and DEI. That case remains pending.
President Donald Trump (R) issued an executive order on Dec. 11, 2025, directing the Securities and Exchange Commission (SEC) to expand oversight of proxy advisor firms on ESG and DEI matters.
Paxton, along with attorneys general of Nebraska, Iowa, and West Virginia sued ISS on similar consumer protection grounds in May 2026.
Hawaii enacts clean fuel standard targeting 50% carbon cut by 2045
What’s the story?
Hawaii Gov. Josh Green (D) signed SB 2999 into law on July 15, 2026, establishing a statewide clean fuel standard. The law sets targets to reduce the carbon intensity of transportation fuels — a measure of greenhouse gas emissions produced over a fuel's lifecycle per unit of energy delivered — 10% below 2019 levels by 2035, and 50% by 2045. Hawaii is now the fifth state to enact a clean fuel standard following California, Oregon, Washington, and New Mexico — all five states have Democratic trifectas.
The law creates a credit system: fuels that beat the yearly carbon target earn credits, while fuels that miss it create deficits, and producers can trade or bank credits to stay in compliance. The Hawaii Department of Transportation (HDOT) has to write the implementing rules by Jan. 1, 2028, and the standard takes effect for gasoline and diesel on Jan. 1, 2029.
Green said, "These investments reinforce a commitment to building co-beneficial models, allowing economic opportunities to give way to a cleaner, low-carbon future."
The Environmental Caucus of the Democratic Party of Hawaii opposed the bill. In testimony, the group said, "This is not a clean energy transition; it is a mechanism that preserves combustion under a 'clean' label."
Why does it matter?
Transportation is Hawaii's largest source of greenhouse gas emissions. The law seeks to reduce emissions from that sector by requiring HDOT to establish progressively lower carbon-intensity standards for transportation fuels.
The law builds in cost protections for consumers, capping the price of a credit at $200 in 2026 dollars. If compliance costs exceed 15 cents per gallon, HDOT has to publicly review whether the rules need to ease up. At least half of the credit revenue generated by electric utilities and public agencies must go toward transportation programs benefiting communities the law describes as underserved or overburdened.
State Sen. Chris Lee (D-25), who introduced the bill, said "This is a huge opportunity to create new reinvestment in lower-cost, cleaner transportation options for local residents, using a model already proven in other states."
On Wall Street and in the private sector
U.S. sustainable funds post first inflows in four years
What’s the story?
According to Morningstar, U.S. sustainable funds had their first quarter of positive flows since early 2022 in the second quarter of 2026. The funds attracted nearly $3 billion in net inflows, ending 14 straight quarters of outflows.
The gain was uneven across fund types. Passive sustainable funds drew $6.5 billion, while actively managed sustainable funds lost $3.6 billion.
The largest inflows went to the First Trust Nasdaq Clean Edge Smart Grid Infrastructure Index ETF, which collected $3.1 billion. The fund invests in companies tied to electricity grid infrastructure, an area drawing investor interest during rising power demand from artificial intelligence and data centers.
Morningstar said assets in the U.S. sustainable funds — a category the firm defines using its own sustainability methodology — reached a record $398 billion, up 13% from the previous quarter, driven by both new inflows and market gains.
Why does it matter?
Morningstar analysts Alyssa Stankiewicz and Mahi Roy wrote that the shift "mirrors a broader trend across the U.S. fund industry, where investors continue shifting toward lower-cost index products and away from many higher-cost, actively managed options." Active sustainable funds have now recorded 13 consecutive quarters of outflows.