The lawsuit, filed Oct. 29 in federal court, targets Senate Bill 183, which was approved in the 2026 legislative session and regulates proxy advisors—firms that provide research and voting guidance to investors on shareholder proposals. The plaintiffs are the Interfaith Center on Corporate Responsibility (ICCR) and United Church Funds, both based in New York, and Ceres, a Boston-based nonprofit.

SB 183 states that a proxy advisory service is “not solely in the interest of shareholders” if its recommendations are based on non-financial factors such as “an environmental, social, political, or ideological interest” not directly tied to investment risk or return. It also requires proxy advisors to notify shareholders when a recommendation conflicts with a company board’s position and lacks a complex economic analysis, and to inform them that the advice may prioritize non-financial objectives over financial returns. Violations could be penalized under the state’s consumer-protection law.

The bill passed the Senate 32-6 and the House 81-6. Gov. Andy Beshear, a Democrat, vetoed it, arguing 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 both chambers easily overrode the veto.

Supporters, including state Sen. Matt Nunn, R-Sadieville, say the law is about transparency. “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,” Nunn said in a March 2026 news release. “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 also said many nonprofits are 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,” he said.

The plaintiffs argue the law violates their First Amendment rights. They say it discriminates against shareholders whose proposals disagree with company boards, imposes an onerous economic-analysis requirement that boards themselves don’t face, and forces proxy advisors to state something they don’t believe—namely, that a proposal is not in shareholders’ interest.

“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 states. “In Plaintiffs’ view, all these interests are intimately connected to long-term financial performance.”

The complaint alleges 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.” It also claims the law’s terms are so vague that proxy advisors would struggle to comply.

ICCR says it represents more than 300 institutional investors, over half of them faith-based, and uses shares to advocate for improved environmental and social concerns. United Church Funds provides investment services to more than 1,000 churches and faith-based organizations, while Ceres works with investors to push measures including reducing fossil-fuel emissions.

The lawsuit names Attorney General Russell Coleman as defendant because his office defends challenges to state law. It seeks to strike down SB 183, an injunction barring enforcement, and attorney fees. The case was filed by Democracy Forward, a progressive legal group, along with Amy D. Cubbage, an attorney with Tachau Meek in Louisville and former general counsel to Beshear.

“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,” Skye Perryman, president and CEO of Democracy Forward, said in a statement.

Nunn responded 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.” He added, “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.”

Coleman’s office did not respond to a request for comment last week.

The lawsuit is the latest flashpoint in a broader national fight over environmental, social and governance (ESG) investing, with Republican-led states moving to restrict consideration of climate and social factors in financial decisions while faith-based and progressive investors argue such factors are essential to long-term returns. For Kentucky, the case could determine whether state law can penalize investment advice that weighs values alongside financial metrics—a question with implications for the state’s pension funds and the thousands of church-affiliated investors who say their faith calls them to engage corporate America.