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Group sues Texas over law banning state business with firms 'boycotting' fossil fuels

A business group is suing Texas over the so-called “anti-ESG law.” Photo via Getty Images

A progressive business group sued Texas on Thursday over a 2021 law that restricts state investments in companies that, according to the state, “boycott” the fossil fuel industry.

The American Sustainable Business Coalition filed suit against Attorney General Ken Paxton and Comptroller Glenn Hegar, alleging that the law, Senate Bill 13, constitutes viewpoint discrimination and denies companies due process, in violation of the First and Fourteenth Amendments. The group asked a federal judge in Austin to declare the statute unconstitutional and permanently block the state from enforcing it.

“Texas has long presented itself as a business-friendly state where limited state regulation facilitates the ability of businesses to conduct themselves as they see fit,” lawyers for the group wrote. “Yet in 2021, the Legislature passed SB 13 to coerce and punish businesses that have articulated, publicized, or achieved goals to reduce reliance on fossil fuels.”

Known as the “anti-ESG law” — which stands for “environmental, social and governance” — Senate Bill 13 requires state entities, including state pension funds and the enormous K-12 school endowment, to divest from companies that have reduced or cut ties with the oil and gas sector and that Texas officials deem antagonistic to the fossil fuel industry.

In approving the legislation, Republican officials looked to protect Texas oil and gas companies and to bite back at Wall Street investors pulling financial support from the industry in an effort to incorporate climate risk into their investments and respond to pressure to divest from fossil fuels, which play an outsized role in accelerating the climate crisis.

In March, Texas Permanent School Fund, Austin, cut ties with BlackRock, which managed roughly $8.5 billion of the $52.3 billion endowment and which was listed by Texas as one of the companies that should not handle state business.

The statute defines “boycott” as, “without an ordinary business purpose, refusing to deal with, terminating business activities with, or otherwise taking any action that is intended to penalize, inflict economic harm on, or limit commercial relations with” a fossil fuel company. It also prohibits state agencies from doing business with a firm unless it affirms that it does not boycott energy companies. And it charges the state comptroller with preparing and maintaining a blacklist of companies based on “publicly available information” and “written verification” from the company.

In a statement, Hegar, the comptroller, called the lawsuit an “absurd” attempt to “force the state of Texas and Texas taxpayers to invest their own money in a manner inconsistent with their values and detrimental to their own economic well-being.”

“This left-wing group suing Texas,” he said, “is hiding their true intent: to force companies to follow a radical environmental agenda that is often contrary to the interests of their shareholders and to punish those companies that do not fall into lockstep and put politics above earnings.”

Paxton’s office did not immediately reply to a request for comment.

Texas has blacklisted more than 370 investment firms and funds, including BlackRock and funds within major banks like Goldman Sachs and J.P. Morgan. BlackRock, among other companies, pushed back on its designation as “boycotting” fossil fuels, calling the decision “not a fact-based judgment” and citing over $100 billion in investments in Texas energy companies.

“Elected and appointed public officials have a duty to act in the best interests of the people they serve,” a BlackRock spokesperson said at the time. “Politicizing state pension funds, restricting access to investments, and impacting the financial returns of retirees, is not consistent with that duty.”

In Thursday’s suit, the American Sustainable Business Coalition argued that the physical and financial risks posed by climate change are a legitimate investment and business consideration and cause for efforts to reduce carbon emissions.

The group said the Texas law was enacted to go after what Republican lawmakers saw as a “burgeoning fossil fuel discrimination movement,” and that it effectively “infringes rights of free speech and association under a scheme of politicized viewpoint discrimination” and allows Texas officials to “punish companies they believe are insufficiently supportive of the fossil fuel industry.”

The group argued that the law penalizes companies for their energy policies and membership in certain business associations, and compels them to adopt positions that align with Texas officials “as a condition” of doing business with state entities.

The suit also alleged that the law violates companies’ right to due process because vagueness in the statute “encourages arbitrary enforcement” and fails to provide blacklisted companies a fair process to contest their designation.

Texas blacklisted “the flagship investment funds” of Etho Capital and Sphere, two climate-focused firms represented by the American Sustainable Business Coalition, according to the lawsuit.

“Among ASBC’s many projects are efforts to encourage sustainable investing and sustainable business practices,” the lawsuit reads. “These are all cornerstones of the modern Texas economy. Yet, SB 13 takes aim at, and punishes, companies that speak about, aspire to, and achieve this goal.”

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This story was originally published by The Texas Tribune and distributed through a partnership with The Associated Press.

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A View From HETI

20+ companies will pitch at Energy Tech Nexus' Pilotathon during Houston Energy & Climate Startup Week. Photo via Getty Images.

There is no sugar‑coating it: 2025 was a rough year for many climate tech founders. Headlines focused on policy rollbacks and IRA uncertainty, while total climate tech venture and growth investment only inched up to about 40.5 billion dollars, an 8% rise that felt more like stabilization than the 2021–2022 boom. Deal count actually fell 18% and investor participation dropped 19%, with especially steep pullbacks in carbon and transportation, as capital concentrated in fewer, larger, “safer” bets. Growth-stage funding jumped 78% while early-stage seed rounds dropped 20%.

On top of that, tariff battles and shifting trade rules added real supply‑chain friction. In the first half of 2025, solar and wind were still 91% of new U.S. capacity additions, but interconnection delays, equipment uncertainty, and changing incentive structures meant many projects stalled or were repriced mid‑stream. Founders who had raised on 2021‑style valuations and policy optimism suddenly found themselves stuck in limbo, extending runway or shutting down.

The bright spots were teams positioned at the intersection of climate and the AI power surge. Power demand from data centers is now a primary driver of new climate‑aligned offtake, pulling capital toward firm, 24/7 resources. Geothermal developers like Fervo Energy, Sage Geosystems and XGS did well. Google’s enhanced‑geothermal deal in Nevada scales from a 3.5 MW pilot to about 115 MW under a clean transition tariff, nearly 30× growth in geothermal capacity enabled by a single corporate buyer. Meta and others are exploring similar pathways to secure round‑the‑clock low‑carbon power for hyperscale loads.

Beyond geothermal, nuclear is clearly back on the strategic menu. In 2024, Google announced the first U.S. corporate nuclear offtake, committing to purchase 500 MW from Kairos Power’s SMR fleet by 2035, a signal that big tech is willing to underwrite new firm‑power technologies when the decarbonization and reliability story is compelling. Meta just locked in 6.6GW of nuclear capacity through deals with Vistra, Oklo, and TerraPower.

Growth investors and corporates are increasingly clustering around platforms that can monetize long‑duration PPAs into data‑center demand rather than purely policy‑driven arbitrage.

Looking into 2026, the same trends will continue:

Solar and wind

Even with policy headwinds, solar and wind continue to dominate new capacity. In the first half of 2025 they made up about 90% of new U.S. electricity capacity. Over the 2025–2028 period, FERC’s ‘high‑probability’ pipeline points to on the order of 90–93 GW of new utility‑scale solar and roughly 20–23 GW of new wind, far outpacing other resources.

Storage and flexibility

Solar plus batteries is now the default build—solar and storage together account for about 81% of expected 2025 U.S. capacity additions, with storage deployments scaling alongside renewables to keep grids flexible. Thermal storage and other grid‑edge flexibility solutions are also attracting growing attention as ways to smooth volatile load.

EVs and transport

EV uptake continues to anchor long‑term battery demand; while transportation funding cooled in 2025, EV sales and charging build‑out are still major components of clean‑energy demand‑side investment

Buildings

Heat pumps, smart HVAC, and efficient water heating are now the dominant vectors for building‑sector decarbonization. Heating and cooling startups alone have raised billions since 2020, with nearly 700 million dollars going into HVAC‑focused companies in 2024, and that momentum carried into 2025.

Hydrogen

The green hydrogen narrative has faded, but analysts still see hydrogen as essential for steel, chemicals, and other hard‑to‑abate sectors, with large‑scale projects and offtake frameworks under development rather than headline hype.

CCS/CCUS

After years of skepticism, more large CCS projects are finally reaching FID and coming online, helped by a mix of tax credits and industrial demand, which makes CCS look more investable than it did in the pre‑IRA era.

So, yes, 2025 was a downer from the easy‑money, policy‑euphoria years. But the signal beneath the noise is clear: capital is rotating toward technologies with proven unit economics, real offtake (especially from AI‑driven power loads), and credible paths to scale—not away from climate altogether.

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Nada Ahmed is the founding partner at Houston-based Energy Tech Nexus.

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