Business group asks federal judge to stop Texas anti-ESG law

The American Sustainable Business Council has asked a federal judge to overturn a Texas law that blacklists companies for fighting climate change by denying them government contracts, an authoritarian blow against free enterprise, free speech and freedom of conscience.

The complaint filed in Austin on Thursday argues that 2021’s Senate Bill 13 was designed to boost investment in fossil fuel companies and violates businesses’ First Amendment prohibition against discrimination based on viewpoint and the 14th Amendment right to due process.

The council, representing thousands of businesses and investors, filed the suit on behalf of financial technology firms Etho Capital and Sphere, which prioritize environmentally responsible investing. The blacklist prohibits them from expanding business in Texas.

“Laws like SB 13 not only inhibit economic growth and innovation but also set a dangerous precedent for the role of government in business affairs,” Etho Capital CEO Amberjae Freeman said. “Etho Capital believes that responsible investing is not just good for the environment but also for long-term economic growth.”

In February, I wrote a series of columns on how because of SB 13 Texas taxpayers could end up paying $22 billion in excess interest payments, thanks to the Republican-led Legislature, Gov. Greg Abbott and Comptroller Glenn Hegar. The law bans governments, including school boards, from doing business with financial firms that invest in lowering greenhouse gas emissions.

SB 13 requires the comptroller, Texas’ elected chief financial officer, “to prepare and maintain a list of all financial companies that refuse to deal with, terminate business activities with, or otherwise take any action that is, solely or primarily, intended to penalize, inflict economic harm on, or limit commercial relations” with the fossil fuel industry.

Hegar has placed dozens of investment funds and 16 large firms on the list, including the world’s largest asset manager, BlackRock, along with HSBC, UBS, BNP Paribas, NatWest Group and AMP Limited. Etho Capital’s Climate Leadership ETF and Sphere’s 500 Fossil Free Fund are on the list of banned securities.

BlackRock, UBS and other companies have protested their inclusion, pointing to tens of billions of dollars invested in the oil and gas industry. But Lt. Gov. Dan Patrick and Hegar insisted on their inclusion without explaining why or how they might get off it. Thus, the complaint about due process.

“SB 13 is not just a misguided policy; it is an unconstitutional attack that stifles free speech and punishes businesses for prioritizing responsible investments,” David Levine, president and cofounder of the council, said. “By challenging SB 13, we aim to protect the rights of all businesses to operate freely and responsibly.”

Democracy Forward, a national legal organization that defends civil rights, represents the firms.

Banning major financial firms gives local governments fewer choices for bond offerings, loans and other financial services. Larger firms tend to offer better terms. TXP, an economic analysis firm hired by the Texas Association of Business Chambers of Commerce Foundation, calculated that SB 13 costs Texans $270 million a year in debt-related costs alone.

SB 13 is only one example of a nationwide movement to force corporations to do business with fossil fuel companies. Dozens of state legislatures have passed laws blacklisting companies for implementing environmental, social and governance safeguards. Courts have already stopped Oklahoma and Missouri from imposing similar statutes.

Republican politicians say the laws are necessary to stop corporations from folding to left wing pressure and adopting ESG policies. However, financial ratings firms say climate change poses real risks for fossil fuel companies and their investors.

On Wednesday, Fitch Ratings, which like this news outlet is owned by Hearst, warned it could downgrade the bonds of 20% of the corporations it rates by 2035 due to climate-related risks. When an agency lowers a company’s bond rating, it must pay higher interest rates.

“Coal-based utilities, oil and gas, and certain metals and mining sub-sectors will be particularly vulnerable due to significant emissions and lower demand forecasts,” Fitch said. “Some other sectors, including renewables, will benefit from the energy transition.”

In its new World Energy Outlook, Exxon Mobil decried the slowing of investment in oil and gas companies, a trend SB 13’s GOP authors said they wanted to counter. The law forces firms to do business with oil and gas companies or end up on the blacklist.

Whether you worry about climate change or not, the real issue is whether the government should dictate any company’s investment strategy. True conservatives believe elected officials should stay out of private sector decisions. The court should overturn SB 13 as an unconstitutional, authoritarian power grab that hurts all Texans.

Award-winning opinion writer Chris Tomlinson writes commentary about money, politics and life in Texas. Sign up for his “Tomlinson’s Take” newsletter at houstonchronicle.com/tomlinsonnewsletter or expressnews.com/tomlinsonnewsletter.