Court ruling on Texas anti-ESG law may save state from self-inflicted economic wound
Key Takeaways:
A federal court ruling striking down a Texas “anti-ESG” law may have far-reaching effects.
The law was designed to prevent public pension managers and government contractors from boycotting fossil fuel companies.
The state’s description of the oil and gas industry as the “economic lifeblood” of Texas is based on outdated and incorrect information.
The legislation has already cost Texas as much as $500 million in bond underwriting costs, with five national banks leaving the state, in part due to the law.
A federal court decision striking down an “anti-ESG” Texas law may save the state from a self-inflicted economic wound, according to the latest Institute for Energy Economics and Financial Analysis (IEEFA) briefing note.
The law, designed to protect the oil and gas industry by preventing public pension managers and government contractors from “boycotting” or divesting from fossil fuels, was based on outdated assumptions about the industry’s strength and role in the Texas economy.
The reality, however, is that the Texas oil and gas industry is not the producer of jobs or tax receipts it once was. Texas oil and gas employment is down from its 2014 peak, and oil and gas tax receipts have grown more slowly than overall revenue sources since 1972. By blacklisting several national banks, the law has cost Texas municipalities as much as $500 million in additional bond underwriting costs.
“The tired assumption that oil and gas is the economic lifeblood of Texas is based on data from decades ago,” said Dan Cohn, IEEFA energy finance analyst and co-author of the briefing note. “To pursue a fanciful economic boost for the state, Texas local governments have had to pay hundreds of millions in extra borrowing costs. The law was a bad deal that created pure costs with no benefits. Overturning it was in the best interest of the Texas economy.”
The court also found the law’s vague and overbroad language impaired due process and constitutionally protected speech. Although the court’s decision applies only to the Texas law, it casts significant doubt on the legality of similar state efforts, with far-reaching effects for investors, policymakers, and fiduciaries across the country.
