Lawsuit Challenges Texas Law Against Energy Boycott by Investment Firms

Major Legal Challenge to Texas Energy Boycott Law

A prominent liberal business coalition has initiated a significant lawsuit against Texas officials this week, contesting a controversial law enacted in 2021 that prohibits state entities from engaging in business with investment firms deemed to be boycotting energy companies. The lawsuit, brought forth by the American Sustainable Business Council in the United States District Court in Austin, argues that the law infringes upon the First Amendment rights by restricting business relationships based on the firms’ “actual or perceived” political stances regarding fossil fuels.

This law specifically bars state entities, including retirement funds, from investing with firms identified as having enacted boycotts by integrating environmental principles into their investment strategies. According to research from Pleiades Strategy, a policy research group, approximately twenty states have adopted similar laws over recent years, reflecting a broader backlash against the rise of Environmental, Social, and Governance (E.S.G.) investing.

E.S.G. investing considers various factors such as environmental impact, social responsibility, and governance practices when making investment decisions. This trend has gained momentum over the past decade, prompting some states to react with restrictive legislation. Notably, an anti-E.S.G. law in Oklahoma faced a successful legal challenge earlier this year, resulting in a temporary injunction by a judge.

The lawsuit in Texas names key officials as defendants, including the state attorney general, Ken Paxton, and the state comptroller, Glenn Hegar. In response to the lawsuit, Hegar criticized the action, labeling it as an attempt “to compel companies to adhere to a radical environmental agenda that frequently contradicts the interests of their shareholders.” He further emphasized that the plaintiffs have “overlooked the crucial role” of the oil and gas sector in Texas, particularly as forecasts for future demand continue to rise.

A recent report by Goldman Sachs indicated that global demand for oil is projected to increase over the next decade. This expectation has been attributed to slower sales of electric vehicles and rising overall consumption patterns, underscoring the ongoing significance of traditional energy sources in the current economic landscape.