Texas lawsuit targets anti-ESG laws

A lawsuit filed by the American Sustainable Business Council in August in Texas challenging a state law targeting what critics call anti-ESG measures within the world’s eighth-largest economy aims to establish a model for challenging similar laws in other states.

In 2021, Texas enacted Senate Bill 13 (SB-13), which prohibited the state from collaborating with financial institutions deemed, by the state, to be boycotting energy companies. The companies blacklisted include Blackrock, HSBC Holdings, and Credit Suisse. In response to the passage of SB-13, JPMorgan Chase, Goldman Sachs, Citigroup, Bank of America and Fidelity all exited the market.

The American Sustainable Business Council (ASBC), an environmental advocacy group based in Washington, D.C., sued Texas Comptroller Glenn Hegar and Texas Attorney General Ken Paxton on Aug. 29 for violating the First and 14th amendments.

“SB-13 is not just a misguided policy; it is an unconstitutional attack that stifles free speech and punishes businesses for prioritizing responsible investments,” said ASBC co-founder and President David Levine in a press release provided to Trellis. ASBC is alleging that the Texas law “coerce[s] and punish[es] businesses that have articulated, publicized, or achieved goals to reduce reliance on fossil fuels.”

Twenty states have enacted anti-ESG legislation, including Georgia, Tennessee and Montana, according to an analysis released by law firm Ropes & Gray. In addition to the states, a movement by conservative activist Robby Starbuck to pressure companies to drop ESG policies is gaining momentum. John Deere, Tractor Supply, Harley Davidson, Lowe’s and Ford all recently dropped ESG policies.

State legislators have introduced dozens of anti-ESG bills in recent years – 76 this year alone — and 42 have passed in 2023 and 2024. 

The outcome of this lawsuit in Texas’ $2.4 trillion economy will set a major precedent for anti-ESG legislation moving forward. In July, Oklahoma District Court Judge Sheila Stinson permanently blocked a similar law that prohibited state contracts with firms that factored ESG into investments.

“By challenging SB-13, we aim to protect the rights of all businesses to operate freely and responsibly,” said ASBC’s Levine.

“It is ironic that this left-wing group suing Texas is hiding their true intent: to force companies to follow a radical environmental agenda that is often contrary to the interests of the shareholders,” said Hegar, the Texas comptroller, in a statement. He declined to comment further. ASBC’s members include Ben & Jerry’s, Seventh Generation, and Patagonia, among other corporations.

Attorney General Paxton did not respond to Trellis’ request for comment.

The Texas Comptroller state website also quotes Hegar preemptively commenting on the implementation of SB-13, saying “our objective is to provide a brighter spotlight on the importance of the fossil fuels industry in our everyday lives, but without disparaging alternative energy industries and their place on Texas’ grid.”

Financial impact of Texas’ anti-ESG law

As larger institutions such as JPMorgan Chase and Goldman Sachs left the marketplace, smaller financial institutions found themselves in a less competitive ecosystem, allowing them to increase costs, according to a study from the Wharton School at the University of Pennsylvania titled “Gas, Guns, and Governments: Financial Costs of Anti-ESG.” Texas cities paid an additional $300 million-$500 million in interest on $32 billion in bonds through April 2022, the study found.

Texas business groups have also spoken out against the law. The Texas Association of Business Chambers of Commerce Foundation released an economic impact study that found that the law will result in:

• $668.7 million lost in economic activity
• $180.7 million in decreased annual earnings
• 3,034 fewer full-time jobs
• $37.1 million in losses to Texas state and local tax revenue

“Certain laws can have a negative impact on businesses … it is important for our state’s policymakers to understand the implications of these laws in order to ensure Texas remains the top U.S. state for business,” said Stephanie Matthews, the Chamber Foundation’s executive director, in a statement.

A copy of the lawsuit filed in the U.S. District Court fo the Western District of Texas, Austin Division, is below.

https://democracyforward.org/wp-content/uploads/2024/08/Docketed-Complaint-ASBC-v.-Hegar-8.29.24.pdf