Texas SB 13 Struck Down: Judge Rules Against Anti-ESG Law

5 February 2026

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By Jack Grogan-Fenn

A Texas federal judge has struck down one of the US’ most prominent anti-environment, social and governance (ESG) laws, ruling that prohibiting state investment in companies avoiding financing fossil fuels is unconstitutional.

Senate Bill (SB) 13 was challenged by the American Sustainable Business Council (ASBC) on the grounds that divestment and procurement constituted viewpoint discrimination and an unconstitutional condition on speech and association under the US Constitution’s First Amendment. Judge Alan Albright agreed with the plaintiff that the bill was “overbroad and unconstitutionally vague” and that it is unconstitutional under the Constitution’s First and Fourteenth Amendments.

SB 13, which came into effect in 2021, prohibited certain state investment funds from investing in and requires them to divest from companies that “boycott energy companies”, particularly energy firms that create power from fossil fuels. The bill required the Texas Comptroller to identify these companies and place them on a publicly available blacklist which contained more than 300 firms as of June 2025.

The lawsuit, originally filed by the ASBC in 2024 against then-Texas State Comptroller Glenn Hegar and current Attorney General Ken Paxton,  alleged five different counts of free speech and due process violations. The ASBC requested summary judgment on three of those five claims in January 2025, all three of which Judge Albright ruled in favour of this week.

“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,” said David Levine, President and Co-Founder of the ASBC. “SB-13 cost Texans hundreds of millions of dollars, blacklisted responsible businesses, and hindered progress towards a more resilient economy. We are grateful the court has put an end to this detrimental law.”

The ruling could hold key implications both within Texas and beyond, though it is important to note that Texas may appeal to the Fifth Circuit and the ruling does it touch separate litigation over newer Texas laws aimed at proxy advisors. Texas and its Attorney General Paxton have placed themselves at the forefront of the anti-ESG movement, prominently targeting asset managers, proxy advisors and other stakeholders.

Political contests over ESG in the US aren’t over yet; there are several other Republican-run states that have enacted variants of similar legislation to Texas’. However, many US state-level anti-ESG initiatives rely on similar mechanics: a blacklist or certification regime built around elastic terms such as “boycott”, “ordinary business purpose”, or “non-financial factors”, combined with penalties in the form of divestment or exclusion from public contracts. Albright’s reasoning takes the core mechanics of that design to task. If the trigger concept is too indeterminate to be applied objectively, and if it operates to penalise firms for positions associated with climate risk, transition planning or net zero alignment, it risks failing both due process and free speech tests.

Being blacklisted has had major implications for investors and companies alike. The world’s largest asset manager BlackRock pulled out or two significant climate initiatives in Climate Action 100+ and the Net Zero Asset Managers initiative to get itself removed from the blacklist, which played a key role in latter being wound up. The bill also led to Texas state investment funds, such as the Teacher Retirement System of Texas and the Texas Permanent School Fund, pulling billions in finance from firms seen as boycotting fossil fuels.

Albright, who was appointed by Donald Trump in 2018 during his first term as President, was also the judge that granted an injunction against SB 2337 which could majorly impact proxy advisors. An update on the two lawsuits is expected sometime this month.

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Last Updated: 5 February 2026