Texas' Anti-ESG Law Under Legal Scrutiny
A progressive business group has filed a lawsuit to challenge a controversial 2021 Texas law that prohibits the state from engaging in business with companies considered hostile to the fossil fuel industry. This lawsuit, spearheaded by the American Sustainable Business Council, targets Attorney General Ken Paxton and Comptroller Glenn Hegar, arguing that the Senate Bill 13 (SB 13) infringes upon the First and Fourteenth Amendments to the U.S. Constitution.
The Impact of SB 13
The so-called anti-ESG law—where ESG stands for Environmental, Social, and Governance—has already prompted Texas to divest investments from 16 major financial companies, including giants like BlackRock, Inc. and UBS Group AG. Although these companies are not plaintiffs in the lawsuit, they have been affected by the law's restrictions.
David Levine, president and co-founder of the American Sustainable Business Council, criticized SB 13, describing it as "not just a misguided policy; it is an unconstitutional attack that stifles free speech and punishes businesses for prioritizing responsible investments." The council's legal challenge aims to safeguard the rights of businesses to operate with autonomy and responsibility.
Background and Repercussions
The legislation arose as a response to investment firms adopting strategies that prioritize environmental, social, and corporate governance concerns. BlackRock, which manages around $10.5 trillion in assets, became a focal point of Texas' political backlash after its CEO announced a shift away from oil and gas investments.
Despite efforts to reconcile with Texas lawmakers, including co-hosting a natural gas investment symposium, BlackRock continues to face restrictions on doing business with the state, according to the comptroller's office.
Economic Consequences
The lawsuit, supported by Democracy Forward, a progressive legal advocacy group, highlights significant financial repercussions. Economists at the Perryman Group estimate that the forced divestments have cost Texas taxpayers around $1.5 billion in lost potential financial gains and increased interest payments on government loans. State funds such as the Permanent School Fund and the Teacher Retirement System of Texas have been compelled to offload assets previously managed by BlackRock and similar firms affected by the law.
In their legal filing, the American Sustainable Business Council is joined by members Etho Capital and Sphere—investment firms focusing on climate sustainability. However, crucial investment funds from these companies have been blacklisted under SB 13, further underscoring the law's contentious impact.
Call for Legislative Reconsideration
Skye Perryman, CEO of Democracy Forward, condemned the legislation, stating, "Governor Abbott should have never signed SB 13. The law is bad for Texas businesses and taxpayers and violates the U.S. Constitution." She urged state leaders, including Governor Abbott and Lt. Governor Dan Patrick, to reassess the legislation for the betterment of Texas' economy and its people.
The lawsuit's outcome could have significant implications for both Texas' economic policies and the broader national conversation surrounding ESG investments and their role in the business landscape.
