A federal judge in Texas has struck down a law barring state agencies from investing in firms accused of boycotting fossil fuel companies. The 2021 law had become a model for similar measures around the country, as part of a larger push against the use of environmental principles in investing.
Judge Alan D. Albright of the U.S. District Court in Austin ruled that the law was unconstitutional and blocked the state from enforcing it. The law, known as S.B. 13, was overly broad and related to activities protected by free speech rights, he wrote in a 12-page decision signed on Tuesday. He said the measure allowed the state to penalize companies “for all manner of protected expression concerning fossil fuels.”
The decision was part of a lawsuit filed in 2024 by the American Sustainable Business Council. Two of the companies it represents, Etho Capital and Sphere, had been put on what they called a blacklist. David Levine, the council’s president, called the decision “a massive win for sustainable businesses and investors, for responsible shareholders in Texas and for freedom.”
The suit named Ken Paxton, the Texas attorney general, and the state’s former comptroller, Glenn Hegar, as the defendants. Mr. Paxton’s office did not immediately respond to a request for comment, nor did the office of the acting comptroller, Kelly Hancock.
Judge Albright, who was appointed by President Trump in 2018, wrote that the law was too vague, failed to provide a “reasonable opportunity” to know what conduct was prohibited, and invited discriminatory enforcement. Even its definition of what constituted a boycott was unclear, and standards for measuring compliance with the law were not provided, he wrote.
A Texas law prohibiting state agencies from contracting with companies allegedly boycotting Israel had faced similar legal challenges, Judge Albright noted in the decision.
The law affected retirement funds for public employees and a state fund for public schools, among other entities. The list of barred companies and funds includes some of the biggest financial firms in the world. A representative for one of them, BlackRock, did not immediately respond to a request for comment.
Mr. Hegar announced in June that BlackRock had been taken off the list after making changes like exiting climate-oriented business networks and scaling back funds that prohibit oil and gas investments.
BlackRock has also been sued by Texas and other states over its relationship to the coal industry. In 2024, the states accused BlackRock, Vanguard and State Street of colluding to reduce coal production as part of a conspiracy to fight climate change. The firms have denied the allegations in the still-pending case. In September, Mr. Paxton also announced an investigation into proxy advisers, or research firms for institutional investors, over their stances on E.S.G., which stands for environmental, social and governance factors.
More broadly, the fervor for E.S.G. investing that took hold in the finance world some years ago has decidedly ebbed. Many Wall Street giants have backed out of their commitments to reduce carbon emissions and support clean energy.
More than 20 states have passed anti-E.S.G. laws in recent years, according to a tally by Pleiades Strategy, a policy research group.
Karen Zraick covers legal affairs for the Climate desk and the courtroom clashes playing out over climate and environmental policy.
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