Recently, a business group has filed a lawsuit in federal court in Austin, Texas, challenging the constitutionality of a 2021 law that penalizes banks and financial institutions for participating in a “boycott” of the fossil fuel industry. The lawsuit argues that the law infringes on the free speech and association rights protected under the First and Fourteenth Amendments of the U.S. Constitution.
Texas has been at the forefront of anti-environmental, social, and governance laws that have been adopted by other states as well. Two such laws, including Senate Bill 13, have resulted in the blacklisting of 19 financial firms, including municipal bond underwriters, for their supposed boycott or discrimination against the fossil fuel or firearm industries. The legislation also mandates the divestment of public pension and other assets from these banned firms and prohibits governmental contracts worth over $100,000 with them.
Legal Challenge
The American Sustainable Business Council, the plaintiff in the lawsuit, argues that Senate Bill 13 is not just a misguided policy but an outright violation of constitutional rights. The President of the council, David Levine, stated that the law stifles free speech and punishes businesses for making responsible investment decisions. Furthermore, the complaint points to a study by the Texas Association of Business, which suggests that the legislation is driving up interest costs for local governments, ultimately burdening Texas taxpayers.
In response to the lawsuit, Texas Comptroller Glenn Hegar defended the law, emphasizing the state’s sovereignty and its right to make decisions in the best interest of its residents. He accused the business group of attempting to impose a radical environmental agenda on the state and its taxpayers. The Attorney General of Texas, Ken Paxton, also supported the law by banning Barclays from underwriting debt earlier this year.
The legal battle over the constitutionality of the Texas law on fossil fuel boycotting has significant implications for businesses, financial institutions, and the broader investment community. It raises questions about the balance between state regulations and individual rights, particularly when it comes to ethical investment practices and freedom of speech.
The lawsuit challenging the Texas law on fossil fuel boycotting brings to light the ongoing debate over government intervention in private sector decisions. It underscores the importance of upholding constitutional rights, even in the face of legislative attempts to regulate business practices. The outcome of this legal battle will undoubtedly have far-reaching consequences for the future of responsible investing and the protection of free speech in the business world.