Judge blocks Texas law prohibiting state investment in anti-fossil fuel companies

AUSTIN, Texas - A Texas law requiring state entities to sever ties with financial companies that "boycott fossil fuels" has been blocked by a district judge.

The judge decided Senate Bill 13, which prompted an $8.5 billion hit to BlackRock, violates two amendments to the U.S. Constitution. 

Texas SB 13 blocked

What we know:

U.S. District Judge Alan D. Albright ordered Tuesday that the State of Texas is enjoined from implementing and enforcing SB 13, which blocked state contracts with companies that were believed to be harmful to the fossil fuel industry. 

Albright found that the law violates the 1st and 14th Amendments, saying the law was overly broad, unconstitutionally vague, and enables arbitrary and discriminatory enforcement. 

Albright's order says companies could lose state contracts under SB 13 simply for criticizing fossil fuels or associating with "sustainability-focused" organizations. 

He also criticized key terms, such as "limit commercial relations" and "any action," which he said were too open-ended. This prevents companies from knowing what actions might result in penalties, the order says. 

The order also says businesses have been blacklisted for viewpoints and association rather than action, with Albright suggesting there's been a lack of clear standards under the law. 

Plaintiffs weigh in

What they're saying:

"This is a massive win for sustainable businesses and investors, for responsible shareholders in Texas, and for freedom," said David Levine, President and Co-Founder of the American Sustainable Business Council. "The court has affirmed what we've always known: you cannot punish businesses for their investment decisions or silence those who speak about climate risk. SB-13 cost Texans hundreds of millions of dollars, blacklisted responsible businesses, and hindered progress towards a more resilient economy. We are grateful the court has put an end to this detrimental law."

"SB-13 was an unconstitutional attack on business that was bad for Texas – its citizens, taxpayers, workers, business owners, and pensions," said Skye Perryman, President and CEO of Democracy Forward. "The court correctly saw through the state’s contradictory arguments and struck down a law that threatened the freedom to invest and punished speaking about the risks posed by fossil fuels, advocating for sustainable energy choices, and associating with like-minded organizations. We are so grateful for the courage of our client, the American Sustainable Business Council and its members, who took this challenge head-on. This is just the latest example that shows when ‘We the People’ fight to defend our freedoms, we win." 

Read the full judicial order below:

What is Senate Bill 13?

The backstory:

SB 13 prevented state entitled from investing in companies that refuse to do business with or harm companies in the fossil fuel industry. The law has been referred to as the state's anti-ESG law, referring to environmental, social, and governance regulations. 

It worked by requiring those state entities to sell stocks in such companies or cancel contracts with them. Companies could get 90-day warnings to end boycotts before losing these investments and contracts, and were required to sign statements saying they wouldn't enter into boycotts during new Texas contracts. 

The law was enacted to protect the Texas economy's investment in oil and gas, preventing public money from going to companies that might harm those efforts. Critics at the time of the law's passage worried it could hurt companies who were environmentally conscious. 

Effects of Senate Bill 13

Dig deeper:

Within a year of SB 13 going into effect, Texas named 10 companies as boycotters of the state's energy industry. That list included BlackRock and UBS Group, as reported by FOX Business. 

BlackRock released a statement soon after, disagreeing with the comptroller at the time:

"This is not a fact-based judgment," the statement said. "BlackRock does not boycott fossil fuels – investing over $100 billion in Texas energy companies on behalf of our clients proves that. Elected and appointed public officials have a duty to act in the best interests of the people they serve. Politicizing state pension funds, restricting access to investments, and impacting the financial returns of retirees is not consistent with that duty."

Less than two years later, Texas pulled an investment of $8.5 billion with the company.

According to sources cited by Democracy Forward, the law cost the state nearly $700 million in lost economic activity. Three thousand people lost full-time jobs according to the Texas Association of Business, which reportedly caused $270 million in increased costs for banking and financial services.