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In 2021, the Texas Legislature passed Senate Bill 13 (SB 13), authored by State Sen. Brian Birdwell (R-Granbury), a high-profile attempt to push back against Environmental, Social, and Governance (ESG) practices that lawmakers believed were harming the state’s energy sector. The law restricted how state entities could invest and contract, targeting companies deemed to be “boycotting” fossil fuel businesses.
Earlier this week, a federal judge halted that effort entirely. The United States District Court for the Western District of Texas ruled that SB 13 violates the First and Fourteenth Amendments to the U.S. Constitution and permanently enjoined the state from enforcing it. The decision represents a significant legal setback for Texas’s anti-ESG framework and clarifies the constitutional limits on using state economic power to influence private conduct and speech.
What SB 13 Required Under Texas Law
Senate Bill 13 created two interconnected enforcement mechanisms within the Texas Government Code. The first applied to state investments. The second applied to state and local government contracts.
Under the investment provisions, the Texas Comptroller was required to compile and maintain a public list of financial companies that “boycott energy companies.” State retirement systems and the Permanent School Fund were required to divest from listed companies and were prohibited from making new investments in them, subject to limited fiduciary exceptions. Companies that failed to respond to inquiries from the Comptroller were presumed to be boycotting energy companies by default.
The procurement provisions applied more broadly across state and local government. Any company with ten or more employees seeking a contract valued at $100,000 or more was required to certify that it did not boycott energy companies and would not do so during the life of the contract. Without that certification, the contract could not be executed.
Both provisions relied on the statute’s definition of “boycott energy company.” The law defined a boycott as refusing to deal with, terminating business activities with, or otherwise taking any action intended to penalize, inflict economic harm on, or limit commercial relations with fossil fuel companies, unless done for an “ordinary business purpose.”
Why the Court Found SB 13 Unconstitutional Under the First Amendment
The court concluded that SB 13 is facially overbroad and impermissibly burdens protected speech. Texas argued that the law regulated only commercial conduct, but the court rejected that characterization based on the statute’s text and how it was enforced.
The phrase “taking any action that is intended to penalize” played a central role in the court’s analysis. The judge found that this language easily encompasses protected expression, including public advocacy, association with climate-focused organizations, and speech critical of fossil fuel reliance. Under SB 13, such expression could trigger blacklisting and economic penalties simply because it conveyed a viewpoint disfavored by the state.
The court emphasized that laws that burden a substantial amount of protected speech are unconstitutional even if they also reach some legitimate conduct. SB 13 did not merely risk incidental speech impacts. It expressly allowed the Comptroller to rely on publicly available information, including speech and affiliations, when determining whether a company was boycotting energy companies. In practice, companies were penalized for advocacy and association rather than for objectively measurable conduct.
Because SB 13 operated as a viewpoint-based restriction on speech, the court held that it violated the First Amendment and could not be enforced
Why the Court Found SB 13 Unconstitutionally Vague
The court also held that SB 13 violates the Due Process Clause of the Fourteenth Amendment. Laws that regulate conduct must give fair notice of what is prohibited and provide clear standards to prevent arbitrary enforcement. The court found that SB 13 failed on both counts.
Key terms such as “penalize,” “limit commercial relations,” and “ordinary business purpose” were undefined and subjective. The court found that companies could not reasonably determine what actions would trigger blacklisting or how to remove themselves from the list once included.
This vagueness was not merely theoretical. Evidence showed that companies asserting legitimate business reasons for their decisions were still blacklisted, while others engaging in similar conduct were not. The Comptroller retained broad discretion to accept or reject explanations without providing clear reasoning or a meaningful opportunity for appeal.
When a statute touches protected expression, the Constitution requires heightened clarity. SB 13 instead encouraged regulated entities to steer far wider of lawful conduct than necessary, chilling speech and association. On that basis, the court ruled the law unconstitutional and unenforceable
The Scope and Effect of the Court’s Unjunction Against SB 13
The court declared SB 13 unconstitutional under both the First and Fourteenth Amendments and permanently enjoined Texas officials from implementing or enforcing the statute. The injunction applies to both the divestment provisions governing state investments and the procurement provisions governing government contracts.
As a result, state investment funds may no longer be compelled to divest based on a company’s perceived stance toward fossil fuels, and state and local governments may not condition contracts on certifications related to energy boycotts under SB 13.
Liberty Implications of the SB 13 Ruling
The court’s decision against SB 13 does not resolve the broader liberty questions that motivated its passage. Supporters of SB 13 did not frame the bill as an effort to silence speech or punish dissenting viewpoints. Instead, they viewed the legislation as a response to what they described as coordinated financial discrimination against lawful energy producers and the retirement systems and consumers that depend on them.
Testimony offered in support of SB 13 emphasized that the concern was not the existence of ESG investing itself, but the use of political and activist pressure to push financial institutions away from their fiduciary obligations and toward collective action that restricts capital access to entire industries. From this perspective, the problem was not expression, but collusion. Major banks and asset managers, often acting through shared alliances and proxy campaigns, were accused of denying financing and investment to energy producers not because of financial risk, but because of ideological objectives unrelated to shareholder value.
Viewed through that lens, SB 13 was intended to protect free and competitive markets rather than distort them. Proponents argued that when capital markets are steered by coordinated political agendas, smaller producers, energy consumers, and retirees bear the cost through higher prices, reduced competition, and increased dependence on foreign energy sources. State pension funds, they argued, should not be compelled to reward firms that are actively working to constrain industries that underpin the state’s economy and tax base.
The court’s ruling draws a constitutional boundary around how far a state may go in responding to those concerns. While the court held that SB 13 crossed that line by relying on vague standards and mechanisms that swept in protected expression, it did not reject the underlying policy concern about discriminatory financial practices. Rather, it found that the structure of SB 13 placed too much discretionary power in the hands of the state and tied economic consequences too closely to speech, advocacy, and association.
As a result, the liberty tension exposed by this case cuts in both directions. On one hand, the Constitution protects private actors from state retaliation based on viewpoint or expression. On the other hand, supporters of SB 13 argue that liberty is also threatened when financial power is consolidated and wielded to exclude lawful industries from capital markets based on coordinated political objectives. The ruling does not negate that concern, but it does require lawmakers to pursue any response through narrower, more clearly defined means that do not implicate First Amendment protections.
How Senate Bill 946 Represents a Post-SB 13 Course Correction
The Legislature’s consideration of Senate Bill 946 (SB 946), authored by State Sen. Bryan Hughes (R-Mineola), during the 89th Legislative Session (2025) reflects an effort to address the same underlying concerns that animated SB 13, while avoiding the constitutional vulnerabilities exposed by the courts. SB 946 focused on discriminatory access to credit rather than state investment divestment or contracting penalties.
Where SB 13 relied on state purchasing and investment power to counteract perceived financial discrimination against energy producers, SB 946 sought to regulate lending practices directly by prohibiting financial institutions from denying or restricting credit based on factors unrelated to traditional financial risk. These included political beliefs, lawful participation in disfavored industries, or adherence to environmental or social standards beyond what the law requires.
That shift in approach is significant. SB 946 did not depend on blacklists, intent-based determinations, or subjective assessments of advocacy or association. Instead, it was framed as a neutral safeguard aimed at ensuring that access to credit remains tied to objective financial criteria rather than ideological alignment. In that sense, SB 946 can be understood as a legislative attempt to respond to the same market distortions identified by SB 13’s supporters while steering clear of First Amendment and due process concerns.
Although SB 946 passed the Texas Senate, it ultimately did not advance out of the House State Affairs Committee, chaired by State Rep. Ken King (R-Canadian). Its failure underscores the difficulty lawmakers face in navigating ESG-related policy without triggering constitutional constraints or political resistance. Still, the bill illustrates how future efforts may evolve by targeting conduct in financial markets rather than expression, speech, or association.
What the SB 13 Ruling Means for Future ESG-Related Legislation
The court’s decision does not prohibit all state action related to ESG or financial policy. It does, however, attempt to establish clear constitutional boundaries.
Future legislation must avoid vague standards, subjective intent tests, and mechanisms that hinge on speech or association. Laws grounded in neutral, objective criteria tied directly to financial performance or fiduciary duty are far more likely to withstand judicial scrutiny than statutes that rely on ideological classifications.
The failure of legislation like SB 946 to advance in the House further suggests that lawmakers remain divided over how to address ESG concerns without repeating the constitutional flaws exposed by SB 13.
A Ruling That Clarifies the Boundaries of Competing Liberty Claims
The injunction against Senate Bill 13 does not settle the broader debate over ESG, energy discrimination, or the role of financial institutions in shaping economic outcomes. What it does settle is the constitutional boundary within which that debate must occur.
Supporters of SB 13 advanced the bill as a defense of free enterprise, fiduciary responsibility, and competitive markets, arguing that coordinated financial pressure campaigns against lawful energy producers undermine economic liberty, harm consumers, and distort capital allocation. From that perspective, the use of state leverage was seen as a counterweight to concentrated private power rather than an attempt to suppress dissenting views.
The court, however, concluded that SB 13 crossed a constitutional line by relying on vague standards and enforcement mechanisms that swept in protected speech, advocacy, and association. In doing so, it reaffirmed that even well-intentioned legislative responses must respect First Amendment protections and provide clear, objective rules that constrain government discretion.
The resulting tension is not between liberty and regulation, but between competing conceptions of liberty itself. One emphasizes protection from government retaliation based on viewpoint or expression. The other emphasizes protection from coordinated market exclusion driven by political agendas rather than financial judgment. The SB 13 ruling does not deny the legitimacy of the latter concern, but it makes clear that addressing it through state action requires greater precision and restraint.
For Texas lawmakers, the lesson is not that ESG-related concerns are illegitimate, but that constitutional limits demand narrower tools. Future legislation will need to focus on objectively defined financial practices and measurable conduct, rather than intent, ideology, or association. How effectively the Legislature adapts to those constraints will shape the next phase of ESG policy in Texas.
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