A foundational piece of Anti-ESG legislation has been dismantled. Texas’ 2021 ESG investment law allowed the state comptroller to create a “banned list” of financial firms that the state considered to be “boycotting” the fossil fuels industry. State entities, including pension funds, were banned from doing business with any of the listed firms. A judge for the Western District of Texas found the law unconstitutional for two reasons. The first discussed in the Opinion is a First Amendment violation:
“SB 13 violates the First Amendment because it is facially overbroad. A statute is overbroad when it purports to burden only non-constitutionally protected activities, but ‘includes within its scope activities which are protected by the First Amendment…’ SB 13’s application to protected speech is ‘substantial,’ both in absolute terms and ‘in relation to the statute’s plainly legitimate sweep…’ For this reason alone, the law is unconstitutional and unenforceable.”
Additionally, the judge found that the law violates the Fourteenth Amendment by being overly vague:
“A law is unconstitutionally vague in violation of the Due Process Clause when it ‘either forbids or requires the doing of an act in terms so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application…’ SB 13 is impermissibly vague in violation of the Fourteenth Amendment because it 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. Thus, the law is unconstitutional and unenforceable.”
Texas will likely appeal the decision, but the win is still monumental. This law was one of the earliest passed by the anti-ESG movement and was instrumental in coercing major financial firms to abandon climate pacts and commitments. Anti-ESG is racking up losses in courts across America. However, several big questions remain, including the pending antitrust litigation in Texas against BlackRock, State Street, and Vanguard. If anti-ESG finds no success in the courtroom, will corporations rethink their ESG retreat? After all, climate risks aren’t going to manage themselves.
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