A Win for ESG in Texas

The U.S. District Court for the Western District of Texas ruled that Texas’s anti-ESG law (SB-13), which prohibits state entities from investing in or contracting with companies that “boycott” fossil fuel businesses, is unconstitutional on the grounds of free speech.

The court ruled that SB 13 violates both the First and Fourteenth Amendments. Specifically, the court held that SB 13 improperly penalizes protected speech and advocacy related to climate and energy issues and fails to give companies clear guidance on what conduct is prohibited.

First Amendment

The court ruled that SB 13 is “facially overbroad” because its definition of “boycott” includes “any action” intended to harm fossil fuel companies, which could encompass protected speech, advocacy, and association. This broad language allows the state to punish companies for expressing environmental or climate-related views, which violates constitutional free speech protections.

Fourteenth Amendment

The court held that SB 13 is unconstitutionally vague. Key terms such as “penalize,” “limit commercial relations,” and “ordinary business purpose” are undefined, leaving companies unable to determine how to comply with the law. The court found that this ambiguity enables arbitrary and discriminatory enforcement, as shown by inconsistent decisions by the Texas Comptroller.

Impact on Managers and Business

• ESG and Sustainable Investment are protected speech. Asset managers and companies can pursue ESG, climate, and sustainability strategies without fear that Texas can lawfully punish them for those views.

• Texas’s “Anti-ESG” Blacklist Is Effectively Invalidated

• Reduced compliance burden for contractors by striking down the requirement that vendors certify they do not “boycott” energy companies.

A Word of Caution

The court's ruling establishes a precedent against “Anti-ESG” Laws nationwide and opposes President Trump's direct challenge to ESG. While Texas can no longer "lawfully" punish managers for those views, it doesn't mean Texas won't find other ways to enforce its will. Therefore, asset managers are strongly advised to wait and see how the State of Texas and President Trump react before exercising their right to free speech. ESG won the battle today, but the war continues.

Reference:

Case: 1:24-CV-01010-ADA

About the author

Joe Holman founded ESG Administration LLC. With over 25 years of experience in financial services, fund administration, and operational consulting, he brings a rare combination of deep industry expertise and forward-looking ESG insight to the alternative investment landscape.

For more information on this topic or Responsible Investment, contact ESGA at joe.holman@esgadmin.com.