Lawsuit Against Texas Over Business Law

By Jonathan Stempel

(Reuters) – Texas was sued on Thursday by a nonprofit that advocates for environmentally-friendly policies. The organization seeks to block a state law targeting businesses that support a reduced reliance on fossil fuels.

The American Sustainable Business Council claims that the 2021 law, known as Senate Bill 13, violates the free speech rights of its members by preventing Texas from investing in or contracting with businesses that the state perceives as “boycotting” the oil and gas industry.

As the largest oil-producing state in the U.S., Texas has enacted measures against businesses whose environmental, social and governance (ESG) policies the state dislikes. This move marks Texas as a leading Republican-led state in this initiative.

The lawsuit, filed in Austin’s federal court, names state Attorney General Ken Paxton and Comptroller Glenn Hegar as defendants. Both Republicans support the 2021 law.

In a statement, Hegar denounced the lawsuit as a “frivolous attempt” to impose a radical environmental agenda, prioritizing politics over business interests. He argues that it is absurd to urge Texas and its taxpayers to invest in ways contrary to their values and economic well-being.

Paxton’s office has yet to respond to requests for comment.

Hegar maintains a list of 16 financial companies and over 350 investment funds that allegedly target fossil fuel-based energy through their ESG policies. Recently, he added British bank NatWest to this list. Earlier this year, the Texas Permanent School Fund announced it would divest $8.5 billion from BlackRock, a company also on Hegar’s list.

The American Sustainable Business Council asserts that Senate Bill 13 has caused harm to its corporate and individual members, which together represent more than 200,000 businesses, despite Texas’s self-portrayal as a business-friendly state.

Two members of the council, Etho Capital and Our Sphere, have funds that appear on Hegar’s list.

The lawsuit states, “The law violates the First Amendment by barring companies from competing for state investments or contracting with the state whenever Texas believes those companies espouse a disfavored viewpoint about fossil fuels.”

The complaint argues that because SB 13 codifies viewpoint-based discrimination, it is presumptively unconstitutional.

This case is titled American Sustainable Business Council v. Hegar et al, U.S. District Court, Western District of Texas, No. 24-01010.