Companies with ESG policies - including financing parties investing in or lending money for renewable energy projects - should assess the impact of Texas Senate Bill 19 on their government contracting opportunities, and should expect and prepare for heightened state regulation of corporate firearm policies in the future.
Effective September 1, 2021, Texas Senate Bill 19 prohibits government entities from contracting with companies that have policies that restrict business with the firearms industry. The bill specifically targets banks and other financial institutions that have at least ten employees and are seeking government contracts of at least $100,000. Under the bill, such institutions are required to provide written verification that they do not have practices, policies, guidance, or directives that "discriminate" against a firearm entity or firearm trade association.
In 2018, several banks announced policies that set restrictions on the firearms industry after a shooting at Marjory Stoneman Douglas High School in Parkland, Florida. For example, Citigroup announced that it would prohibit retailers that are customers of the bank from offering bump stocks or selling guns to individuals who have not passed a background check or are younger than twenty-one. That same year, Bank of America announced that it would stop making new loans to companies that make military-style rifles for civilian use. These policies will likely trigger enforcement of the bill, and both institutions risk losing government contracting opportunities in Texas.
Given the scope of Texas Senate Bill 19, companies with Environmental, Social, and Governance ("ESG") policies should be especially mindful of the government contracting implications of the new legislation. ESG policies often limit participation in the firearms industry and would constitute "discrimination" against firearm entities such that enforcement of Texas Senate Bill 19 would be likely. The bill defines "company" as "[A] for-profit organization, association, corporation, partnership, joint venture, limited partnership, limited liability partnership, or limited liability company, including a wholly owned subsidiary, majority-owned subsidiary, parent company, or affiliate of those entities or associations that exists to make a profit".
Thus, while financial institutions with ESG policies - including certain entities with ESG policies that serve as tax equity investors and construction lenders on wind, solar, and other renewable energy deals - are likely covered by Texas Senate Bill 19, the utility off-takers and Electric Reliability Council of Texas (ERCOT) entities in which they invest will not be subject to the same restrictions so long as such investments do bring these entities under the definition of a "company" provided in the bill. Regardless, Texas Senate Bill 19 is one of many approaches intended to regulate ESG policies at the state level, and companies-including those entities with which they contract-should expect and prepare for similar measures in the future.
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