A federal court has delivered a significant blow to Texas’ efforts to police corporate climate policies, ruling that a 2021 state law targeting so-called “anti-fossil fuel” investing violates the U.S. Constitution. The decision marks a key moment in the ongoing national debate over environmental, social and governance (ESG) standards—summed up by the headline-grabbing outcome that U.S. judge strikes down Texas anti-ESG law as unconstitutional.
Free Speech at the Center of the Case
In a ruling released Wednesday, U.S. District Judge Alan Albright found that Senate Bill 13 unlawfully infringed on First Amendment protections. The law barred Texas from investing state funds in companies perceived to be reducing reliance on fossil fuels or “boycotting” the energy sector.
According to Albright, the statute effectively punished businesses for expressing views about fossil fuels or for aligning with groups that challenge the oil and gas industry. He said that kind of government action crosses a constitutional line by penalizing protected speech and association.
Law Deemed Overbroad and Vague
The Austin-based judge went further, calling the measure “facially overbroad” and “unconstitutionally vague.” In his view, the way Texas defined a boycott of energy companies was so sweeping that it invited selective and 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,” Albright wrote. He was appointed to the bench by former President Donald Trump.
Texas, the nation’s largest oil-producing state, has also been the biggest Republican-led state to move aggressively against ESG-focused business practices it views as hostile to the energy industry.
State Officials Push Back
The lawsuit challenging the law was brought by the American Sustainable Business Council, which represents more than 250,000 businesses and investors. The group argued that Senate Bill 13 baked viewpoint discrimination into state policy, harming companies that consider climate risks in their investment decisions.
Texas Comptroller Kelly Hancock said the state plans to appeal. “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.
The lawsuit also named Hancock’s predecessor, Glenn Hegar, along with Texas Attorney General Ken Paxton. Paxton’s office did not immediately comment on the ruling.
Ripple Effects Across Wall Street
Before it was struck down, the law had real financial consequences. Several Texas state pension funds were forced to divest from asset managers linked to climate-focused initiatives.
Major financial firms—including BlackRock, JPMorgan Chase and State Street—have scaled back or softened their public climate commitments in recent years amid mounting pressure from Republican officials.
In June last year, Texas even allowed state agencies to resume doing business with BlackRock after officials said the firm acknowledged the economic importance of supporting the oil and gas sector.
A Win for Sustainable Investors
David Levine, president and co-founder of the American Sustainable Business Council, welcomed the ruling, calling it a “massive win” for sustainable businesses and investors nationwide.
“The court has affirmed what we’ve always known,” Levine said. “You cannot punish businesses for their investment decisions or silence those who speak openly about climate risk.”
As Texas prepares its appeal, the decision is likely to influence similar legal battles across the country, where states continue to wrestle with how far they can go in regulating ESG policies without running afoul of constitutional protections.
