Adds planned appeal, mpact of Texas law, financial companies that changed policies, paragraphs 7-11

By Jonathan Stempel

Feb 5 (Reuters) - A federal judge declared unconstitutional a 2021 Texas law restricting state investments in companies that seek to rely less on fossil fuels or boycott that industry.

In a decision made public on Wednesday, U.S. District Judge Alan Albright said the law violated First Amendment free-speech protections because it punished businesses for speaking about fossil fuels and associating with organizations that oppose fossil fuels.

The Austin, Texas-based judge also called the law known as Senate Bill 13 "facially overbroad" and "unconstitutionally vague," saying it invites and has already led to discriminatory enforcement.

"SB 13’s definition of 'boycott energy companies' permits the state to penalize companies for all manner of protected expression concerning fossil fuels," wrote Albright, an appointee of Republican U.S. President Donald Trump.

Texas is the largest U.S. oil-producing state, and the largest Republican-led state to crack down on businesses whose environmental, social and governance $(ESG)$ policies it opposes.

Senate Bill 13 was challenged by the American Sustainable Business Council, which said in an August 2024 lawsuit that the law illegally codified viewpoint-based discrimination that harms its more than 250,000 members.

"We will appeal," Acting Texas Comptroller Kelly Hancock said in a statement on Thursday. "Texas has every right to pass responsible laws that protect our energy industry and prevent investment firms from using Texans’ own money to push political agendas that would undermine our economy."

The lawsuit named Hancock's predecessor, Glenn Hegar, and Texas Attorney General Ken Paxton as defendants. Paxton's office did not immediately respond to requests for comment.

BANKS, ASSET MANAGERS BACK OFF CLIMATE PUSH

The Texas law forced some state pension funds to sell shares of asset managers associated with efforts to slow climate change.

Financial services companies such as BlackRock BLK.N, JPMorgan Chase JPM.N and State Street STT.N have stepped back in the last couple of years from climate initiatives, after facing pressure from many Republican politicians.

Last June, Hegar let Texas state agencies resume doing business with BlackRock, saying the company "acknowledged the real social and economic costs" of failing to support the oil and gas industry.

David Levine, president and co-founder of the ASBC, in a statement called Albright's decision a "massive win" for sustainable businesses and investors.

"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," Levine said.

(Reporting by Jonathan Stempel in New York; Additional reporting by Ross Kerber in Boston; Editing by Mark Porter and Matthew Lewis)

((jon.stempel@thomsonreuters.com; +1 646 223 6317; Reuters Messaging: jon.stempel.thomsonreuters.com@reuters.net/))