Business Group Sues Texas Officials Over Law That Shields Oil Industry

A liberal business group sued Texas officials this week in a major challenge to a 2021 law that bars state entities from doing business with investment firms that the state comptroller says are boycotting energy companies.

The suit, filed by the American Sustainable Business Council in United States District Court in Austin, argues that the law violates the First Amendment because it prohibits doing business with firms on the basis of their “actual or perceived” political views on fossil fuels.

The law prohibits state entities like retirement funds from placing investments with firms it says have enacted boycotts by including environmental principles in their investment strategies. Twenty states have passed such laws in recent years, according to a tally by Pleiades Strategy, a policy research group.

The laws were part of a backlash in some states against a surge of interest over the past decade in what’s known as E.S.G. investing, or making investment decisions that take into account environmental, social and governance issues like pollution and climate change, among others. A similar anti-E.S.G. law in Oklahoma was successfully challenged in court this year and has been temporarily blocked by a judge.

The Texas suit names the state attorney general, Ken Paxton, and the state comptroller, Glenn Hegar, as the defendants. In a statement, Mr. Hegar assailed the suit, calling it an attempt “to force companies to follow a radical environmental agenda that is often contrary to the interests of their shareholders.”

He added that the group had “ignored the critical role” that the oil and gas industry plays in Texas as projections about future demand continue to rise. A June report by Goldman Sachs concluded that worldwide demand for oil would grow for the next decade, an assessment it attributed to slow sales of electric vehicles and rising consumption.