In a ruling that has sent shockwaves from the oil patches of West Texas to the financial high-rises of Singapore and Hong Kong, a US federal court has struck down a cornerstone of the global anti-environmental, social and governance ( ESG ) movement.

On February 3, judge Alan Albright, a Trump-appointee, declared Texas Senate Bill 13 ( SB 13 ) – a law designed to punish financial firms that “boycott” fossil fuels – unconstitutional, calling it “facially overbroad” and “unconstitutionally vague”.

For sustainable investors in Asia, this is more than just a domestic US legal victory, but also a critical “pressure relief valve” for the global flow of capital.

End of ‘greenhushing’

Since its inception in 2021, SB 13 has forced global asset managers like BlackRock, UBS and BNP Paribas into a defensive crouch.

To avoid being blacklisted from managing Texas’ multi-billion-dollar pension funds, these firms often engaged in “greenhushing” or quietly scrubbing climate commitments from their marketing or withdrawing from international climate alliances.

This created a massive friction point in Asia where many of the global asset managers affected have massive investments that are impacted by the Texas regulation.

While Texas was penalizing firms for considering climate risk, Asian regulators in Japan, Singapore and Hong Kong were moving in the opposite direction, making ESG disclosures mandatory.

“The Texas law effectively forced global firms to speak out of both sides of their mouths,” says an ESG analyst at a leading Singapore-based investment bank. “They had to promise the US they weren’t boycotting oil, while promising Asian regulators they were aggressively managing carbon risk. This ruling allows them to return to a single, unified global standard.”

Protection for Asia’s US-listed firms

The implications are particularly acute for Asian companies with dual-listing on US exchanges as corporates, ranging from South Korean battery makers to Chinese solar manufacturers, often use US-based subsidiaries to access Western capital.

Under the old Texas regime, a global commitment to “net zero” by a parent company in Seoul or Tokyo could have legally jeopardized its US subsidiary’s ability to win state contracts in Texas.

By ruling that the law violated the First Amendment, the US federal court has protected these firms’ right to discuss climate risk as a “material financial factor” rather than a political “boycott”.

Judge Albright notes that the law permitted the state to penalize companies for “all manner of protected expression concerning fossil fuels”, a standard that the court finds unsustainable.

Clearing path for transition finance

The ruling arrives just as Asia is cementing its lead in transition finance with the funding of high-carbon industries ( like steel and cement ) as they shift towards greener technologies.

Asia’s transition requires trillions of dollars. Previously, there was a lingering fear that if a US bank funded a “green steel” project in Vietnam that involved decommissioning a coal plant, Texas might interpret that as a “boycott” of coal.

“This legal clarity is a boon for the Asean [Association of Southeast Asian Nations] taxonomy. American companies must be able to respond to the opportunities embedded in the energy transition. SB 13 tried to prevent their ability to engage with these real risks,” says Frances Sawyer, founder of Pleiades Strategy, in an e-mailed commentary shared with the publication ESG Dive on February 5 following the federal court ruling. Pleiades Strategy is a San Francisco, California-based think-tank focusing on accelerate the transition to clean energy.

In a separate statement issued on February 4, David Levine, president of the American Sustainable Business Council ( ASBC ), which brought the case against Texas, hails the ruling, saying: “The court has affirmed what we’ve always known: you cannot punish businesses for their investment decisions or silence those who speak about climate risk.”

Takeaways for Asian investors

For Asian sustainability investors, the ruling validates the idea that climate risk is a financial risk, not a political one.

It also provides regulatory alignment as Asian firms can now align their US filings with International Sustainability Standards Board requirements without fear of retaliatory blacklisting in Texas.

It also implies capital stability as reduced legal risk in the US means global asset managers are less likely to pull back from sustainable funds that are currently driving growth in Asian emerging markets.

While Texas Attorney General Ken Paxton’s office has not yet signalled its next move, the ruling sets a formidable precedent for similar anti-ESG laws in Missouri, Oklahoma and Florida.

Because this is a federal ruling, the next step doesn’t stay in Texas. If Texas appeals, the case moves to the US Court of Appeals for the Fifth Circuit. If it goes beyond that, it would head to the US Supreme Court.

Texas has a better-than-average chance of getting at least part of the ruling reversed, according to a legal expert, because of the Fifth Circuit’s ideological leaning. However, because the original ruling was made by a conservative-leaning judge ( Albright ) on First Amendment grounds, the state faces a significant uphill battle to restore the law in its entirety.

This adds a layer of weight to the ruling, according to the legal expert, as it signals that the legal concerns regarding the law’s “vagueness” and “overbreadth” are based on strict constitutional interpretation rather than partisan leanings.

Anti-ESG silence ending

For Asia, the message is clear: the era of legally-enforced climate silence is ending.

As the anti-ESG wave hits a constitutional wall, Asia’s status as a stable, disclosure-driven market for sustainable capital is likely to grow.

The “massive win” celebrated by the ASBC this week will likely be felt most deeply in the boardrooms of Asia, where the transition to a low-carbon economy is no longer a political debate, but a financial necessity.