Texas anti-ESG law declared unconstitutional by US judge

By Jonathan Stempel

Feb 5 (Reuters) – A federal judge declared unconstitutional a 2021 Texas law restricting state investments in companies seeking to rely less on fossil fuels or boycott that industry.

In a decision made public on Wednesday, U.S. District Judge Alan Albright said the law violated First Amendment free speech protections because it punished businesses for speaking about fossil fuels and associating with organizations that oppose fossil fuels.

The Austin, Texas-based judge also called the law known as Senate Bill 13 “facially overbroad” and “unconstitutionally vague,” saying it invites and has already led to discriminatory enforcement.

“SB 13’s definition of ‘boycott energy companies’ permits the state to penalize companies for all manner of protected expression concerning fossil fuels,” wrote Albright, an appointee of U.S. President Donald Trump.

Texas is the largest U.S. oil-producing state, and the largest Republican-led state to crack down on businesses whose environmental, social and governance (ESG) policies it opposes.

Senate Bill 13 was challenged by the American Sustainable Business Council, which said in an August 2024 lawsuit that the law illegally codified viewpoint-based discrimination that harms its more than 250,000 members.

Texas Attorney General Ken Paxton and former Texas Comptroller Glenn Hegar were named as defendants.  The offices of Paxton and of Hegar’s acting successor Kelly Hancock did not immediately respond to requests for comment on Thursday.

David Levine, president and co-founder of the ASBC, in a statement called the decision 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.

(Reporting by Jonathan Stempel in New York; Editing by Mark Porter)