Court Strikes Down Texas ‘Anti-ESG’ Law Punishing Investors’ Climate-Related Activity

AUSTIN, TEXAS - On Wednesday, a federal court struck downTexas' "anti-ESG" law, declaring it unconstitutional and permanently barring the state from enforcing it. The law sought to prohibit pension funds and other public entities from investing in or contracting with financial firms deemed to be "boycotting" fossil fuel companies.

In its ruling, the U.S. District Court found that Texas Senate Bill 13 violated the First and Fourteenth Amendments by imposing vague and overbroad restrictions that penalized protected expression and association, and by conditioning access to public investment and contracting on compliance with those restrictions.

SB 13 was enacted in 2021 and relied on a state-maintained blacklist, becoming the first law in a broader wave of legislationaimed at restricting how financial institutions and public funds address climate-related considerations. Similar measures have since been introduced in dozens of states, several of which rely on comparable blacklisting mechanisms. By striking down the Texas statute, the court's decision calls into question the durability of this approach and could have implications for other similar laws across the country.

In response to the news, Ben Cushing, Director of the Sierra Club's Sustainable Finance Campaign, issued the following statement:

This ruling makes clear that Texas politicians crossed a constitutional line by using blacklists and coercive penalties to target investor conduct and speech. The state's unconstitutional actions distorted financial markets, raised costs for public entities, and punished firms for expressing views or engaging in activity related to climate change and fossil fuels.

For public pension trustees and other long-term fiduciaries, the takeaway is that state oversight of investments should reinforce sound fiduciary judgment, not political punishment or vague prohibitions. Managing financial risks, including climate-related risks, is an essential part of responsible investing. This decision should give public officials across the country greater confidence to ensure investment strategies are grounded in the best long-term interests of pension beneficiaries, not political posturing.

About the Sierra Club

The Sierra Club is America's largest and most influential grassroots environmental organization, with millions of members and supporters. In addition to protecting every person's right to get outdoors and access the healing power of nature, the Sierra Club works to promote clean energy, safeguard the health of our communities, protect wildlife, and preserve our remaining wild places through grassroots activism, public education, lobbying, and legal action. For more information, visit https://www.sierraclub.org.