Two recent court decisions in Texas and Oklahoma sent a clear message: laws targeting so-called boycotts by financial companies are running up against serious constitutional and legal limits. While proponents of these measures mischaracterize them as protecting the energy industry, in practice, they restrict businesses’ ability to manage environmental and financial risks, adding regulatory burdens and government interference that advance political agendas rather than support a free market.
As our Freedom to Invest initiative makes clear, businesses must be able to assess all risks and allocate capital without political interference.
In American Sustainable Business Council v. Texas, a federal court struck down SB13, which required the state to divest from firms accused of “boycotting” energy companies. The U.S. District Court for the Western District of Texas found the bill violated both the First and Fourteenth amendments. The issue was how broadly the law defined a “boycott.” It included any action meant to “penalize, inflict economic harm on, or limit commercial relations.” That could apply to normal business decisions—like reducing investments in high-risk fossil fuel projects due to climate-related concerns.
The court ruled the law was unconstitutional because it was too vague, saying it “fails to provide a reasonable opportunity to know what conduct is prohibited.” It also violated free speech protections, since it could punish companies for their views or decisions about environmental risks. As the court put it, the law “permits the State to penalize companies for all manner of protected expression concerning fossil fuels.”
The court warned this kind of vague law “invites—and has in fact already led to—discriminatory enforcement.”
In Don Keenan v. Oklahoma, the state’s Supreme Court struck down a similar law for a different reason. Oklahoma had required pension fund managers to consider whether financial firms were “discriminating” against energy companies. But under the state constitution, pension funds must be managed “for the exclusive purpose” of benefiting retirees. The court found the law violated that rule by forcing investment decisions to consider political goals, like supporting fossil fuel companies, rather than just financial returns. To maximize pension returns, considering companies that effectively manage evolving energy and market risks is simply sound business judgment.
A lower court also found the law likely violated free speech, noting it “extends beyond what is necessary” and restricts lawful business decisions.
These cases highlight a key issue: companies are increasingly factoring climate risk, regulation, and long-term demand into their decisions. That’s not a “boycott.” It’s risk management, and the courts and laws agree. When states try to penalize companies for making those choices, they risk punishing businesses for managing material financial risks and interfering with investment decisions meant to protect retirees and shareholders.
Real-world data shows that such legislative policies come with high economic costs. In Texas, for example, restrictions on financial firms labeled as “energy boycotters” have already led to measurable consequences. One analysis found the law contributed to nearly $700 million in lost economic activity and increased borrowing costs, along with more than 3,000 jobs lost. These outcomes are not theoretical; they demonstrate that when government steps in to limit which financial institutions states can work with, this reduces competition, raises costs for taxpayers, and ultimately undermines the very markets these laws claim to protect.
Businesses need the freedom to decide how to manage risk, including climate-related financial risk, without fear of punishment. These rulings reinforce a simple principle: governments cannot force companies to invest in certain industries or penalize them for choosing not to. Let businesses have the freedom to invest where they see fit, not because of political agendas.
Michael Boudett is General Counsel for the sustainability nonprofit Ceres.