A federal district court ruled Tuesday that a 2021 Texas law requiring state entities to divest from institutions deemed to be “boycotting” fossil fuel companies is unconstitutional and violates the First and Fourteenth Amendments.
Texas Western District Court Judge Alan Albright made the ruling in a case the American Sustainable Business Council filed in August 2024, enjoining the state from further implementation or enforcement of the law, according to the Feb. 3 order.
ASCB is a 501(c)4 that operates under the umbrella of the American Sustainable Business Network, which advocates for sustainable business practices and includes members like Seventh Generation, Patagonia, Ben & Jerry’s and over 2,000 other companies. ASBN President and Co-Founder David Levine called the ruling “a massive win for sustainable businesses and investors,” in a Wednesday press release.
“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,” Levine said in the release. “We are grateful the court has put an end to this detrimental law.”
ASCB sued Texas Attorney General Ken Paxton and former comptroller Glenn Hegar, arguing in a November 2024 amended complaint that the law — Senate Bill 13 — violated its members’ First Amendment rights to free speech and association, according to court documents. The amended complaint also said that the law is unconstitutionally vague, in violation of the Fourteenth Amendment.
Albright’s Tuesday decision came in response to a motion for partial summary judgment ASCB filed in January 2025. Albright agreed that the law was unconstitutionally vague and ruled the law was also “facially overbroad.” He found that, despite Paxton and Hegar’s view that the law is limited to commercial conduct, the way that “boycott energy companies” is defined in the statute “permits the State to penalize companies for all manner of protected expression concerning fossil fuels.”
Under the law, Texas created a list of companies that state entities, including pension funds, were forced to divest from and were banned from doing business with the state. The list contained 15 companies and 332 funds when last updated in June, including ASBN members sustainable investment firms Etho Capital and Sphere.
The law defines boycotting to include “taking any action that is intended to penalize, inflict economic harm on, or limit commercial relations with” oil and gas companies or businesses that work with fossil fuel companies.
“SB 13’s application to protected speech is ‘substantial,’ both in absolute terms and ‘in relation to the statute’s plainly legitimate sweep,’” Albright wrote. “For this reason alone, the law is unconstitutional and unenforceable.”
Albright also found the law unconstitutionally vague because its definition of “boycotting” is made up of three clauses, “all of which are undefined and not susceptible to objective measurement or determination.”
“SB 13 … fails to provide persons of ordinary intelligence a reasonable opportunity to know what conduct is prohibited and does not provide explicit standards for determining compliance with the law,” Albright said.
Paxton’s office did not respond to a request for comment as of press time. Kelly Hancock currently serves as acting comptroller, taking over for Hegar last July.
Pleiades Strategy Founder Frances Sawyer called the Texas law “harmful government overreach” to support “an industry facing decline,” in emailed comments shared with ESG Dive. Pleiades consults for “mission-oriented” leaders in companies on climate action and tracks state-level anti-ESG regulations and actions.
“American companies must be able to respond to the opportunities embedded in the energy transition and reckon with the material costs of climate-change, including extreme weather,” Sawyer said. “SB 13 tried to prevent their ability to engage with these real risks.”
The state divestment list was created by the comptroller’s office in August 2022, following the passage of SB 13, and was updated quarterly until last June. The list originally included 10 financial firms and 348 mutual funds, with BlackRock, BNP Paribas and UBS Group among them.
Hegar’s office added five more financial firms to the divestment list in November 2023 — including Societe Generale SA and Impax Asset Management — and put NatWest Group on the list in August 2024. Following its departure from climate alliances last year, BlackRock was removed from the divestment list as part of the June 2025 update.
Texas also saw a separate anti-ESG law halted in the fall, after a federal judge issued a preliminary injunction on a law targeting proxy advisory firms over their use of ESG factors. Anti-ESG laws in Missouri and Oklahoma have been permanently blocked by judges.
