A federal court in Texas has invalidated a state statute that had placed financial firms that incorporate environmental, social or governance - ESG - considerations into investment decisions on an effective blacklist. The decision, which declared the Energy Discrimination Elimination Act unconstitutional on free-speech grounds, drew swift attention from lawyers and sustainable-investment advocates who say it could provide a legal pathway to overturn similar measures elsewhere.
The Texas law, enacted in 2021, compelled state agencies and local authorities to sever business relationships with and divest holdings in companies that refused to finance certain oil and gas producers. The statute named and targeted a range of institutions, including global asset managers and banks such as BlackRock, HSBC, BNP Paribas and Danske Bank.
Last week, a federal judge concluded the law ran afoul of the First Amendment by effectively penalizing businesses for articulating viewpoints on fossil fuels and for affiliating with organizations that oppose fossil-fuel development. The state of Texas said it intends to appeal the ruling.
Legal counsel interpreted the decision as significant even in its home jurisdiction. "It was a home-court loss for Texas," said Lance Dial, an attorney at K&L Gates. "You would think if there’s any place they could make this stick, it’s Texas."
Observers in the sustainable-investing community said the judgement may serve as a procedural and doctrinal guide for challenges in other states where anti-ESG measures have been adopted or proposed. Bryan McGannon, managing director at the U.S. Sustainable Investment Forum, described the ruling as providing a "roadmap" to contest comparable statutes in Oklahoma, Kentucky, West Virginia, Tennessee and Utah, as well as other policies that single out ESG-related activity.
McGannon highlighted the court’s rejection of a premise underlying many anti-ESG laws - namely the notion that climate or ESG considerations must be driven by social or political goals rather than by "ordinary business purpose." That distinction, he said, opens a route for legal challenges to laws that treat routine investment analysis as politically motivated conduct.
Anti-ESG efforts have taken multiple forms beyond divestment mandates. Legislatures have advanced statutes addressing a range of ESG-related practices, and some plaintiffs have pursued litigation, including an antitrust suit brought by Texas and other states alleging investors violated antitrust laws by factoring corporate climate initiatives into their assessments.
Tracking groups report a wave of legislative activity, though many proposals have failed to become law. Data from climate-policy advisory firm Pleiades Strategy show 26 anti-ESG bills are at various stages across U.S. states such as Alaska, Georgia, Michigan, Minnesota and Nebraska. The firm also reported that 391 similar proposals had been killed after introduction since it began monitoring the issue in 2022.
The debate over ESG is unfolding against a backdrop of sizable climate-linked economic losses and corporate financial adjustments tied to the transition to a lower-carbon economy. Insurer Munich Re told clients in January that natural-disaster losses - including those tied to floods and wildfires, which scientists attribute to rising frequency and intensity related to climate change - totaled $224 billion in 2025. Munich Re noted total losses from the Los Angeles wildfires, the costliest wildfire event on record, were about $53 billion, of which roughly $40 billion was covered by insurance.
Corporate disclosures have also reflected transition-related challenges. Several major companies have identified issues such as uneven incentives and shifting consumer demand for greener products as factors affecting results. In the auto sector, Stellantis recently wrote down $27 billion related to electric-vehicle investments, a charge that coincided with a roughly 30% decline in its share price.
Supporters of ESG integration argue that laws singling out climate or ESG considerations are designed more to punish than to protect fiduciary interests. Ben Cushing, campaign director for sustainable finance at the Sierra Club, characterized statutes like Texas’ as intended to "politically punish" investors rather than to address legitimate financial concerns. He added that, despite the chilling effect such laws may produce, the Texas ruling should reassure investors that addressing climate-related financial risks is consistent with fiduciary duties.
Frances Sawyer, founder of Pleiades Strategy, framed the decision similarly, calling it another court ruling safeguarding the freedom to invest and a strong signal that many anti-ESG statutes may be more threatening in rhetoric than in legal viability.
While the Texas court’s decision is likely to be appealed, its immediate effect has been to re-energize litigation strategies aimed at anti-ESG laws and policies and to underscore tensions among state legislatures, investors, insurers and corporations over how climate-related financial risks and policy preferences should be treated in investment decisions.
The state of Texas has said it will pursue an appeal, meaning the constitutional and policy questions raised by the law will continue to be litigated and could ultimately be resolved at higher judicial levels.