AUSTIN – A progressive business group has filed a lawsuit challenging a 2021 Texas law that prohibits the state from doing business with companies the state considers hostile to the fossil fuel industry.
The American Sustainable Business Council has filed suit against Attorney General Ken Paxton and Comptroller Glenn Hegar, claiming that Senate Bill 13 violates the First and Fourteenth Amendments.
Paxton and Hegar did not immediately respond to requests for comment.
The so-called anti-ESG law (an acronym for environmental, social and governance) has prompted Texas to withdraw investments from 16 financial companies, including investment giant BlackRock, Inc. and UBS Group AG. Neither company is a plaintiff in the case.
“SB 13 is not just misguided policy; it is an unconstitutional attack that suppresses free speech and punishes companies for prioritizing responsible investments,” said David Levine, president and co-founder of the American Sustainable Business Council. “By challenging SB 13, we seek to protect the right of all companies to operate freely and responsibly.”
The law was passed in response to several investment firms adopting investment philosophies that emphasize environmental, social and governance issues. BlackRock, which manages about $10.5 trillion in assets, was at the center of political turmoil in Texas after its CEO announced it would move away from investments in oil and gas.
BlackRock CEO Larry Fink has signaled he is willing to reconcile with Texas lawmakers by co-hosting a symposium on natural gas investments in Houston with Lieutenant Governor Dan Patrick earlier this year, but the company remains barred from doing business with Texas, according to the Comptroller General.
The American Sustainable Business Council includes investment firms Etho Capital and Sphere, which manage index funds focused on climate sustainability. According to the lawsuit, the comptroller's office blacklisted “flagship mutual funds” of these two companies.
Since the law took effect, state funds such as the Permanent School Fund and the Teacher Retirement System of Texas have dumped billions of dollars worth of assets once managed by BlackRock and other companies banned in Texas, costing taxpayers about $1.5 billion in unrealized financial gains and increasing interest payments on state loans, say economists at the Perryman Group.
Democracy Forward, a progressive legal advocacy organization, is representing the plaintiffs.
“Governor [Greg] Abbott should never have signed SB 13. The bill is bad for Texas businesses and taxpayers and violates the U.S. Constitution,” said Skye Perryman, CEO of Democracy Forward. “It is past time that Governor Abbott, Lt. Governor Patrick and their colleagues in the Texas Legislature put the well-being of the people of the state first. Texas' businesses, taxpayers, workers and public employees will be better off if SB 13 is repealed.”
