Judge rules Texas law targeting fossil fuel 'boycotters' is unconstitutional

A federal court judge this week struck down a Texas law that prohibits state and local government contracts with businesses, including municipal bond underwriters, that "boycott" the fossil fuel industry.

In a ruling released on Wednesday, U.S. District Court Judge Alan Albright found the 2021 law is unconstitutional under the First Amendment for being "facially overbroad," as well as under the Fourteenth Amendment, and enjoined the state from implementing or enforcing it.

Senate Bill 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," the ruling stated.

The lawsuit was filed in 2024 against then-Texas Comptroller Glenn Hegar and Attorney General Ken Paxton by the American Sustainable Business Council, which has two members, Etho Capital and Our Sphere, whose flagship investment funds were blacklisted by the comptroller under the law.

The judge rejected claims in the defendants' motion to dismiss the case that the plaintiff lacked standing.

The ruling is "a massive win for sustainable businesses and investors, for responsible shareholders in Texas, and for freedom," said David Levine, president and co-founder of the American Sustainable Business Council,

"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," he said in a statement. "SB 13 cost Texans hundreds of millions of dollars, blacklisted responsible businesses, and hindered progress towards a more resilient economy."

The ruling will be appealed, according to Acting Texas Comptroller Kelly Hancock.

"Texas has every right to pass responsible laws that protect our energy industry and prevent investment firms from using Texans' own money to push political agendas that would undermine our economy," he said in a statement.

Paxton's office did not immediately respond to a request for comment.

Randall Erben, an adjunct professor at the University of Texas at Austin law school, said the lawsuit's next stop is the conservative U.S. Court of Appeals for the Fifth Circuit.

"My guess would be that they would be inclined to at least give great deference to the state in this regard," he said.

There are 15 investment firms, including former muni underwriter UBS, on the Texas comptroller's "boycotter" list. Paxton launched a review in 2023 of banks' involvement with the Net Zero Alliance, which landed Barclays (BCS) on the list in 2024. The attorney general's review was put on hold in January 2025 after the alliance suspended its activities.

Similar laws have popped up in other states. Enforcement of Oklahoma's 2022 Energy Discrimination Elimination Act, which led to underwriting bans for Barclays, Bank of America (BAC), JP Morgan Chase, and Wells Fargo (WFC), was halted in 2024 by a state judge.

An appeal of that ruling is pending before the Oklahoma Supreme Court.

Another 2021 Texas law, which bans contracts worth $100,000 or more with businesses that "discriminate" against the firearm industry, led to a ban on Citigroup's (C/PN) participation in bond deals in 2023 and put BofA and JP Morgan under review.