Court ruling on Texas anti-ESG law may save state from self-inflicted economic wound

A federal court ruling striking down a Texas “anti-ESG” law essentially designed to prevent public pension managers from divesting from fossil fuel assets may save the state from a self-inflicted economic wound.

Although the decision affects only the first of a wave of proposals aimed at promoting fossil fuel investments while suppressing support for renewable energy, it casts significant doubt on the legality of similar state efforts. The implications may have far-reaching effects for investors, policymakers, and fiduciaries across the country.

The Texas attorney general and state comptroller plan to appeal the ruling. However, the law, which was designed to protect the oil and gas industry, is based on a flawed assumption. A policy designed to restrict investments and favor an obsolete economic development model is not likely to achieve the desired result.

If companies identify sustainable non-fossil fuel investments that present good financial opportunities, they should be able to take lawful business actions to pursue their interests without government interference. 

This premise is consistent with the U.S. Constitution and longstanding practices of enterprise in America’s economic system. Corporate boards and senior managers are expected to consider issues that may affect a company’s bottom line. Awareness of the potential impacts of environmental, social, and governance (ESG) factors, including climate change, is part of responsible corporate governance.