Climate friendly investment firms sue Texas Comptroller, Attorney General for infringing on free speech

AUSTIN (KXAN) — The American Sustainable Business Network (ASBN) filed a federal lawsuit against Texas Comptroller Glenn Hegar and Attorney General Ken Paxton on Thursday over the enforcement of a state law it claimed infringed on business' rights to free speech and equal protection.

The Texas Legislature passed that law, SB 13, during its 2021 regular session. It bans government agencies from "investing and contracting with companies on the basis of the companies’ actual or perceived political views regarding fossil fuels," the filing reads.

Under the law, the Comptroller's Office is responsible for determining if a public agency violated this law and notifying the Office of the Attorney General to bring legal action. Texas has similar laws for companies that the Comptroller's Office believes are boycotting firearms manufacturers or Israel.

“The plaintiff has filed a purported First Amendment lawsuit that seeks to undermine state sovereignty and force the state of Texas and Texas taxpayers to invest their own money in a manner inconsistent with their values and detrimental to their own economic well-being," Hegar said in a statement, "That is absurd."

KXAN has reached out to Paxton's office for comment on the case. It has not sent a reply.

The lawsuit states that the law violates the First Amendment by making a content-based ban on speech and association with "no legitimate state interest," and also forces companies to "[agree] with Texas’s preferred position regarding fossil fuels."

"Indeed, when releasing the blacklist, the Comptroller announced that Texas is using SB 13 to punish companies that 'engage in anti-oil and gas rhetoric'" states the lawsuit, citing a press release from Hegar's office. "Paxton similarly released an advisory in October 2023 stating that governmental entities are not free to do business with 'energy company boycotters.'"

Two ASBC member companies, investment firm Sphere and financial technology company Etho Capital, market themselves to potential clients as sustainably-minded investment options. Both are plaintiffs in the lawsuit and on the Comptroller's "blacklist."

“Laws like SB-13 not only inhibit economic growth and innovation but also set a dangerous precedent for the role of government in business affairs. SB-13's shortsightedness is costing Texans millions and hindering progress towards a more resilient and inclusive economy,” said Etho Capital CEO Amberjae Freeman in the release. “It’s time to put an end to this detrimental law."

“We founded Sphere to help people saving for retirement protect themselves from climate risk. The Texas law is intended to limit our ability to offer investment options but really harms Texas in the process," Sphere CEO Alexandra Wright-Gladstein said.

Currently, the list "Financial Companies that Boycott Energy Companies" names over 360 financial companies. Hegar disputed the lawsuit's claims, and said that his office "has taken a very open, transparent and methodical approach."

“It is ironic that this left-wing group suing Texas is hiding their true intent: to force companies to follow a radical environmental agenda that is often contrary to the interests of their shareholders, and to punish those companies that do not fall into lockstep and put politics above earnings," Hegar said.

The Sphere 500 Climate Fund, created in October 2021, showed steady growth over the past year. According to Etho Capital, its Etho Climate Leadership Index has outperformed the S&P 500 Index and Russell 3000 Index from its creation to 2023. Both are required by federal law to act in the interest of their investors.

"It is an unconstitutional attack that stifles free speech and punishes businesses for prioritizing responsible investments," said ASBC president and co-founder David Levine in a press release announcing the lawsuit. "By challenging SB-13, we aim to protect the rights of all businesses to operate freely and responsibly.”

"The ink used to print this frivolous lawsuit is made by the very industry they are trying to eliminate. This is exactly the type of intellectual dishonesty that I have been fighting against," said Hegar in his statement. "During a time when experts are revising long-term fossil fuel demand projections drastically upward, these groups continue to shove their radical agenda onto consumers and ignore the critical role this sector plays, and will continue to play, in our daily lives.”

A report, provided by ASBC and produced by Waco-based firm The Perryman Group, claims that a hypothetical law similar to SB 13 could cost Texas $764.6 million and 8,200 job-years (one person working a job for one year). The report stated a majority of that loss could fall on the retail industry.

Over the next 30 years? Texas could lose out on $20 billion, according to a 2022 University of Pennsylvania study.