New challenges to state anti-ESG boycotts

A federal lawsuit challenging Texas’ anti-ESG (environmental, social, and governance) laws could be copied by plaintiffs in other states. That’s according to an attorney with Ropes & Gray who told Responsible Investor that “the same basic false premise” is baked into the investment boycott laws of several states.

That federal litigation, filed by the American Sustainable Business Council, says the Texas laws violate the First Amendment by boycotting firms based on their “actual or perceived” political views on fossil fuels and firearms, and the Fourteenth Amendment by violating due process.

Texas has broken ties with several investment firms and banks that the state comptroller suspects are avoiding investments in energy companies to avoid climate risks.

The Texas laws being challenged have cost the state $668.7 million in lost economic activity, according to a study done for the Texas Association of Business Chambers of Commerce Foundation earlier this year, which was cited in the lawsuit.

“Elected officials’ desire to take a political bow for supposedly protecting the energy industry is going to strengthen the case against them as their targeting of asset managers’ viewpoints has been even clearer than on the face of the statute,” Attorney Rob Skinner told the publication.

The Texas lawsuit is the latest litigation aimed at knocking down anti-ESG state laws that inserted politics into investment decisions. An Oklahoma state judge struck down that state’s law, saying it violates the state’s constitutional requirement that pension investments be based solely on fiduciary standards. That judge is expected to issue a final judgement as early as this week.

And in Missouri, a federal court said that state’s law interfered with existing federal laws that require investment firms to act in their clients’ best interests. The Missouri law would have required advisers and brokers to file reports and get written permission from clients when recommending investments with a “social or other nonfinancial objective.”

Other states, including Indiana, are deciding whether and how to implement anti-ESG laws. Earlier this year, Indiana Treasurer Daniel Elliot put a state pension plan adviser, BlackRock, on an anti-ESG watchlist. The board of the Indiana Public Retirement System, or INPRS, has yet to decide how they plan to act based on the Treasurer’s list but will meet this month to reportedly review their options.