Federal court strikes down Texas anti-ESG law
February 6, 2026
A federal court has ruled that Texas’ 2021 “anti-ESG” law, Senate Bill 13, is unconstitutional, blocking the state from enforcing a statute that restricted how public entities could invest based on their consideration of climate and other financial risks.
The law required Texas to maintain a blacklist of financial firms and funds deemed to be “boycotting” fossil fuel companies and forced state pension funds and other public entities to divest from them. In practice, the list swept in major financial institutions based on vague and inconsistently applied criteria.
In striking down the law, the court found that SB 13 relied onimprecise definitions and overbroad standards that infringed on constitutional protections. The ruling held that the statute allowed the state to penalize protected expression and failed to provide clear guidance on what conduct was prohibited, making it both overly broad and unconstitutionally vague. The court also emphasized that investment decisions and assessments of risk are protected activities.
The decision adds to a growing body of court rulings rejecting similar anti-ESG measures in other states, reinforcing limits on the use of state power to dictate investment judgment or punish financial actors for how they assess risk.
PESP statement on the ruling:
The court’s ruling overturning Texas’ anti-ESG statute underscores the importance of allowing investment decisions to be guided by financial judgment and a holistic assessment of risks and opportunities.
The law sought to restrict how investors and public entities evaluate risk, including risks tied to climate change, by relying on imprecise standards and arbitrary state enforcement mechanisms.
The decision affirms that investors must retain the ability to consider a range of material factors that affect long-term value and stability, based on the interests of beneficiaries and financial health over decades. Courts are increasingly making clear that efforts to limit this discretion are incompatible with constitutional protections and sound investment governance.
