Judge’s declaration of anti-ESG blacklist as unconstitutional prompted shortlived relief from sustainable investors
A judge may have struck down Texas’s anti-environmental, social and governance blacklist, but it appears to have done little to ease the tension surrounding sustainable investing in the US under President Donald Trump.
In early February, a Trump-appointed judge blocked Texas’s 2021 anti-ESG law, which blacklisted asset managers deemed to be “boycotting” fossil fuel companies, on the grounds it was overly vague and violated asset managers’ first amendment rights to free speech.
Sustainable finance advocates had viewed the ruling as a “crack in the door” that gives investors more freedom to talk about climate risk, US Sustainable Investment Forum executive director Bryan McGannon told Sustainable Views last week.
It was a clear setback for the anti-ESG movement, which has torn through climate coalitions and prompted a drastic shift in the way US investors talk about climate risk. Lawyers also said it made a further 16 similar laws in other states highly vulnerable to legal challenge.
But that sense of resolution has proven shortlived. On Friday asset manager Vanguard announced it had agreed a $29.5mn settlement with Texas and 12 other Republican states. Those states had claimed the ESG investing practices of Vanguard and its competitors State Street and BlackRock amounted to collusion.
The case claimed the asset managers had acquired significant shareholdings in US coal producers, then used their combined influence to force the companies to reduce production, pushing up prices for US consumers.
This political environment provides little incentive for asset managers to be highly intentional about their sustainable investing approach
Vanguard said in an emailed statement it had opted to settle “to put this matter behind us”, and that the agreement “reaffirms our longstanding practices and standards and the passive nature of our index funds”.
The terms of the settlement have not been disclosed publicly, but Kansas attorney-general Kris Kobach said in a statement that the manager had agreed to amend its investment approach, with “strict passivity commitments”. These prohibit it from attempting to influence company strategy, threatening divestment, or submitting ESG-related shareholder proposals, Kobach’s statement added.
The settlement underscores that even as courts question the constitutional soundness of blacklists, scrutiny of large asset managers continues, and for managers with US-based clients, ESG-related legal risk has not disappeared.
This political environment “provides little incentive for asset managers to be highly intentional about their sustainable investing approach”, says Morningstar director of institutional content Lindsey Stewart.
Asset managers remain on the defensive
Regulatory consultant Sarah Haley Knowles says that while anti-ESG laws presented considerable litigation risk — and contributed to a sharp reduction in the way investors speak publicly about sustainability and climate risk — they did not meaningfully change behaviours.
“Legal experts knew from the beginning that there was no standing in these laws, and that a non-partisan objective court was always going to strike them down,” Knowles tells Sustainable Views. “But no one wanted to spend money and time fighting it in court — they’d just rather not have to deal with it at all.”
She says the effect was to chill rhetoric rather than shift portfolios, making it good practice for asset managers to stop talking publicly about sustainability measures, “not because they are ashamed or because they shouldn’t be doing it, but so they don’t have to waste millions on legal fees fighting back”.
The managers on the blacklist were also arbitrary, says Dave Wallack, executive director of corporate governance non-profit For the Long Term. Most of those funds, which included European managers Impax Asset Management and Nordea, “weren’t actively soliciting Texas, and while they found the whole thing to be a nuisance, it didn’t change their day to day”, he says.
Asset managers affected by the ruling declined to comment on the record, though several said privately that they do not expect the ruling to materially change anything about their investment processes.
“The financial industry has a strong hand, they just have to be willing to use it,” former Treasury official and Stanford academic fellow Graham Steele tells Sustainable Views. The Vanguard settlement shows that “the largest financial institutions in the world have rarely been willing to do so”, he adds.
Federal government pursues ‘fair banking’
The Texas case also sits against a broader federal push on “fair access” banking.
A 2020 rule finalised in the last days of Trump’s first presidency was set to prohibit banks from denying banking services to gun manufacturers, cryptocurrencies, energy companies, private prison operators and other controversial industries. It was frozen and later rescinded by the incoming Joe Biden administration after the 2020 election.
The rule was highly controversial, with tens of thousands of consultation responses criticising it as over-reach from the regulator that proposed it, the Office of the Comptroller of the Currency.
Even so, the second Trump administration has taken steps to revive it. In August 2025, the president issued an executive order that gave federal banking regulators 180 days to issue guidance prohibiting “the use of reputation risk or equivalent concepts that could result in politicised or unlawful debanking”.
Those 180 days have passed, and while the OCC has not formally revived the fair access rule, it has said it is reviewing guidance and considering formal rulemaking. The US Federal Reserve has removed reference to reputational risk from its supervisory materials, while the Federal Deposit Insurance Corporation has signalled similar changes.
I’m not sure I see Vanguard doing anything different under the agreement than they’re already doing, besides paying a fine
The fair access rule and state level anti-ESG laws differ in legal structure, but at a high level both centre on the same question: how much discretion financial institutions should have to assess reputational or political risk, and how far governments can intervene in those decisions.
“There has been a clear strategy to use the US’s state and federal banking and regulatory systems to advance anti-ESG proposals, with the fair access rule serving as the first round,” says Steele.
Like state-level anti-ESG rules, the fair access rule was “legally problematic”, Steele says. “It had an extremely weak factual basis . . . and the OCC lacked authority under federal law to issue the rule,” he adds. “It’s telling that the OCC has not replicated the 2020 rule, but instead tried to use other legal provisions like eliminating the use of reputational risk.”
Despite this he expects to see more federal activity on fair access to banking.
An OCC spokesperson tells Sustainable Views that the regulator is “intent on ensuring banks provide access to banking products and services based on individualised, objective, risk-based criteria, not politics or ideology”.
Tension remains
For sustainable investors, the Texas ruling may have narrowed one legal avenue for the anti-ESG movement. But the Vanguard settlement, combined with federal supervisory changes, suggests the broader debate over financial institutions’ discretion on risk management is far from settled.
McGannon says the ruling “pulls back the curtain on the anti-ESG push and makes clear that it was all for political means, not based on materiality or fiduciary duty”.
“I’m not sure I see Vanguard doing anything different under the agreement than they’re already doing, besides paying a fine,” he adds.
With Trump in the White House for another three years, attitudes towards ESG will remain tense. Conservative state and federal officials’ success in pressuring financial institutions to back down from their sustainability efforts makes it unlikely that they will stop anytime soon, says Steele.
Bringing the culture wars into finance has allowed conservative elected officials “to position themselves as populists willing to take on Wall Street elites”, adds Steele. “They have benefited politically even if these measures are clearly illegal.”