Takeaways

• A federal judge struck down Texas’ 2021 anti-ESG law, ruling it violates First Amendment free-speech protections.
• The court said the state cannot penalize firms for ESG investing or for limiting ties to fossil fuels.
• Texas officials plan to appeal, keeping the broader anti-ESG legislation fight alive.

A federal judge has declared a controversial Texas anti-ESG law unconstitutional, dealing a blow to the state’s efforts to restrict investments in companies that move away from fossil fuels.

In a decision made public Wednesday, U.S. District Judge Alan Albright ruled that the 2021 law, known as Senate Bill 13, violates First Amendment protections by punishing companies for their views and business decisions related to climate change and energy policy.

The law barred Texas state agencies and pension funds from investing in or contracting with firms accused of “boycotting” energy companies. In practice, that meant businesses with ESG investing policies or climate commitments risked losing access to state funds.

Read More: Judge Halts Texas Law Limiting DEI and ESG Investment Advice

Albright, based in Austin, said the statute was both “facially overbroad” and “unconstitutionally vague.” He wrote that the measure allowed the state to penalize companies for “all manner of protected expression concerning fossil fuels,” effectively restricting speech and association.

“SB 13’s definition of ‘boycott energy companies’ permits the state to penalize companies for all manner of protected expression concerning fossil fuels,” Albright wrote in the ruling.

Texas, the largest oil-producing state in the U.S., has been among the most aggressive in pushing anti-ESG legislation, arguing that environmental and social policies threaten the state’s oil and gas economy. The law forced some public pension funds to sell shares in asset managers tied to climate-focused strategies.

The case was brought by the American Sustainable Business Council (ASBC), which represents more than 250,000 businesses. The group argued that the law codified viewpoint-based discrimination and unfairly targeted companies that consider climate risks in their investments.

David Levine, president and co-founder of ASBC, called the ruling a “massive win” for sustainable businesses and investors.

“The court has affirmed what we’ve always known: you cannot punish businesses for their investment decisions or silence those who speak about climate risk,” Levine said.

The legal challenge also highlighted the broader impact on major financial firms. Companies such as BlackRock, JPMorgan Chase, and State Street have faced mounting political pressure in recent years, with some scaling back climate initiatives to avoid losing state business.

Still, Texas officials signaled they are not backing down. Acting Texas Comptroller Kelly Hancock said the state plans to appeal the ruling.

“Texas has every right to pass responsible laws that protect our energy industry and prevent investment firms from using Texans’ own money to push political agendas that would undermine our economy,” Hancock said in a statement.

Also Read: What Is Anti-ESG?

Legal experts say the decision could influence similar ESG laws passed in other Republican-led states. If upheld, the ruling may limit how far governments can go in restricting companies’ environmental or climate-related policies.

For now, the judgment marks a significant victory for businesses advocating sustainable investing and corporate freedom of speech.

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Source: Reuters