On February 4, 2026, US District Judge Alan Albright held that SB 13 (2021) — the state’s 2021 law prohibiting investment and contracts with certain financial institutions that are deemed by the state to “boycott energy companies” — was unconstitutional under the First and Fourteenth Amendments of the US Constitution and entered an injunction against its enforcement.
SB 13 was one of the first “anti-ESG” laws to gain traction in the US, serving as both a model and catalyst for additional legislation in politically aligned states across the country. The law barred state entities from investing in or contracting with financial institutions that the Texas Comptroller determined to “boycott energy companies,” given the vital role of the energy sector to the state.
SB 13 defined boycotting as taking certain actions without an ordinary business purpose, such as “refusing to deal with” fossil fuel energy companies, ending business activities with such companies, or “otherwise taking any action that is intended to penalize, inflict economic harm on, or limit commercial relations with” such companies. Although the legislation included certain carveouts and exceptions, it resulted in several major financial institutions being deemed to “boycott energy companies,” thereby prohibiting those institutions from competing for state contracts or receiving investments from state funds.
The lawsuit against SB 13, filed in 2024 by the American Sustainable Business Council, alleged that the law’s divestment and procurement provisions violated the First and Fourteenth Amendments of the US Constitution. In granting the plaintiff’s partial motion for summary judgment, the US district court declared the law unconstitutional and enjoined its enforcement, finding that the statute is facially overbroad and impermissibly vague.
Regarding overbreadth, the US district court found that the phrase “taking any action that is intended to penalize [fossil fuel energy companies]” ostensibly encompassed constitutionally protected speech, including advocacy against reliance on fossil fuels and association with groups that share similar views.
Regarding vagueness, the court found that all three actions contemplated under SB 13 (refusing to deal with, terminating business activities with, or otherwise taking any action intended to penalize, inflict economic harm on, or limit commercial relations) were “undefined and not susceptible to objective measurement or determination,” thus leaving persons unable to reasonably determine what conduct would constitute compliance or non-compliance. For example, the court reasoned that the phrase “limit commercial relations” could refer to advocating for or participating in energy company boycotts, ceasing to do business, avoiding new deals, reducing business activity, or making other related decisions.
Further, the court noted that “the definition invites — and has in fact already led to — discriminatory enforcement,” as the Texas Comptroller has listed financial institutions as boycotting energy companies, despite these institutions asserting that their investment actions toward energy companies fell under the “ordinary business purpose” exception laid out in the definition. The court goes on to say that the Texas Comptroller has not provided an explanation for why those institutions’ assertions that the “ordinary business purpose” exception applied were deemed unreliable.
While the ruling halted the implementation or enforcement of the boycotter list, it does not immediately clarify how listed entities may be brought back into the fold. The Texas Attorney General’s Office did not immediately comment, but Acting Comptroller Kelly Hancock said the ruling will be appealed, which may impact timelines under the law or for delisting entities (particularly if a stay of the law’s enforcement is granted pending such appeal).
In October 2024, a similar lawsuit in Oklahoma, Keenan v. Russ, resulted in near-identical language also being struck down on free speech grounds. However, the Oklahoma ruling focused on protections in the state constitution, limiting its potential relevance in other forums.
An appeal may tee up a broader assessment of the constitutionality of certain ESG-related laws, particularly given contemporaneous First Amendment challenges to California’s pro-climate disclosure mandates. For analysis on those challenges, see this Latham Client Alert.
As such, entities — particularly those in the financial sector — will need to monitor these developments and consider how their own business and compliance strategies may evolve as a result.
The authors would like to thank Catherine E. Fraser for her contribution to this Client Alert.