Texas Senate Bill 13, signed into law on June 14, 2021, does two things: it bars state pension funds and the Permanent School Fund from investing in financial companies that refuse to do business with the fossil fuel industry, and it requires most companies contracting with Texas government entities to certify in writing that they do not boycott energy companies.1Texas Legislature Online. Texas Senate Bill 13 – 87th Regular Session The investment side lives in Government Code Chapter 809; the contracting side lives in Chapter 2274. Together they have reshaped how banks, asset managers, and insurers deal with Texas public money.
What Counts as Boycotting an Energy Company
Chapter 809 defines boycotting an energy company as refusing to do business with, ending a business relationship with, or otherwise penalizing a fossil fuel company without an ordinary business purpose for doing so. That qualifier is where the whole statute turns. A bank that drops an oil company over poor creditworthiness is making a standard business decision. A bank that drops the same company because of a blanket policy against fossil fuel investments is boycotting under this statute.
The target is systematic exclusion driven by environmental or social policy rather than financial risk. Internal guidelines that restrict lending, investment, or other services to fossil fuel businesses based on environmental standards beyond what federal and state law require put a company at risk of being labeled a boycotter. Isolated decisions grounded in credit risk, market conditions, or ordinary underwriting fall outside the definition.
The Contract Verification Requirement
The part of SB 13 most companies actually encounter is Chapter 2274. Any company with 10 or more full-time employees that enters a contract worth $100,000 or more with a Texas governmental entity must include a written verification that it does not boycott energy companies and will not do so during the contract term.2State of Texas. Texas Code GV 2274.002 – Provision Required in Contract It applies to contracts paid wholly or partly from public funds.
There is a carve-out. A governmental entity may skip the verification if it determines the requirement conflicts with its constitutional or statutory duties related to issuing debt, managing deposits, or investing funds.2State of Texas. Texas Code GV 2274.002 – Provision Required in Contract The carve-out exists because forcing cities to exclude major banks from bond underwriting could cripple their financing. In practice, it has become a flashpoint in the municipal bond market.
How a Company Lands on the Restricted List
The Texas Comptroller of Public Accounts maintains a public list of financial companies deemed to boycott energy companies. The office can rely on publicly available information, including financial reports and public statements, and can send written verification requests directly to companies.3State of Texas. Texas Code GV 809.051 – Listed Financial Companies
One mechanic drives much of the enforcement pressure: a company that fails to respond before the 61st day after receiving a verification request is presumed to be boycotting energy companies. Silence creates the presumption, which puts the burden on financial companies to affirmatively defend their policies. The Comptroller updates the list at least annually, though updates can come as often as quarterly, and each update is filed with legislative leadership and the attorney general within 30 days and posted online.3State of Texas. Texas Code GV 809.051 – Listed Financial Companies
The Comptroller’s screening draws on membership in net-zero commitment groups such as Climate Action 100, the Net Zero Banking Alliance, and the Net Zero Asset Managers Initiative, along with ESG ratings data and proxy voting records going back to 2021.4Texas Comptroller of Public Accounts. List of Financial Companies that Boycott Energy Companies FAQ A company flagged through these screens receives a verification request, and the 61-day clock starts.
State Funds That Must Divest
Once a financial company appears on the list, certain state funds must sell their holdings in it. The bill analysis for SB 13 identifies the covered entities:5Texas Legislature Online. Bill Analysis for Texas Senate Bill 13
- Employees Retirement System of Texas (including retirement systems ERS administers)
- Teacher Retirement System of Texas
- Texas Municipal Retirement System
- Texas County and District Retirement System
- Texas Emergency Services Retirement System
- Permanent School Fund
These entities must divest from direct holdings on a phased statutory timeline. At least half of the restricted assets must be sold within 180 days of a company’s listing, with full divestment required within 360 days. A fund may delay only if it determines, in good faith and consistent with fiduciary duty, that selling would likely cause a loss in portfolio value or a meaningful deviation from its investment benchmark. Any delay triggers a reporting obligation to legislative leadership and the attorney general, including objective numerical estimates supporting the determination.6State of Texas. Texas Code GV 809.054 – Divestment of Assets
Indirect holdings work differently. State entities are not required to pull out of actively or passively managed funds or private equity funds that happen to hold listed companies. Instead, the entity sends a letter to the fund manager asking it to remove the listed company or offer a comparable fund without those holdings. If the manager creates such a replacement fund with substantially similar fees, risk, and expected returns, the state entity has up to 450 days to shift its money into the new fund.7Texas Legislature Online. Texas Senate Bill 1158 – Bill Analysis The attorney general has authority to bring any legal action necessary to enforce the chapter.8State of Texas. Texas Code GV 809.102 – Enforcement
The Two Exemption Paths
SB 13 contains two safety valves, and confusing them is a common mistake.
The first is the fiduciary override in Section 809.005. A state entity is not subject to any requirement under Chapter 809 if it determines the requirement would be inconsistent with its fiduciary responsibility over investment assets or other duties imposed by law, including the duty of care under the Texas Constitution.9State of Texas. Texas Code GV 809.005 – Inapplicability of Requirements Inconsistent with Fiduciary Responsibilities and Related Duties This is broad. If a pension board concludes that complying with any part of Chapter 809 would harm beneficiaries, it can opt out of that requirement entirely.
The second is the benchmark-deviation exemption in Section 809.056. It lets a state entity stop divesting from specific listed companies if clear and convincing evidence shows continued divestment would cause a loss in total value of assets under management or push an individual portfolio’s expected performance away from its benchmark. This one is narrow. The entity may only pause to the extent needed to prevent the demonstrated harm, must document the justification with clear and convincing evidence, and must file a written report with the Comptroller, legislative leaders, and the attorney general. The report must be updated every six months.10State of Texas. Texas Code GV 809.056 – Authorized Investment in Listed Financial Companies
What It Has Cost Texas
The clearest price tag attached to SB 13 is on municipal borrowing. When the law took effect, five of the largest municipal bond underwriters stopped doing business in Texas rather than sign the required energy-boycott verifications. A Federal Reserve Bank of Chicago study found that the resulting drop in underwriter competition cost Texas municipal issuers between $300 million and $500 million in additional interest on roughly $31.8 billion in bonds issued during the first eight months after the law took effect.11Federal Reserve Bank of Chicago. Gas, Guns, and Governments – Financial Costs of Anti-ESG Policies Those higher interest payments are ultimately paid by Texas taxpayers through the local governments that issued the debt.
Pension-side costs are harder to measure. Forced divestment generates transaction costs and can pull portfolios off their target allocations. The fiduciary and benchmark exemptions exist because lawmakers acknowledged that risk, but invoking them carries its own administrative load through detailed reporting and semiannual updates.
Status of the Federal Court Challenge
In ASBC v. Hagar, the U.S. District Court for the Western District of Texas struck down SB 13 on summary judgment, the first federal court decision to invalidate a state energy-boycott law. The case was brought by the American Sustainable Business Council on behalf of member firms. The ruling does not necessarily mean the law is permanently off the books. Appeals and legislative responses could change the picture, and the Comptroller’s list and the contract verification requirements have continued to operate during the litigation. If SB 13 affects your business or your fund, track the status of this case closely.