Aug 29 (Reuters) - Texas was sued on Thursday by a

nonprofit whose members support environmentally-friendly

policies, and which seeks to block a state law targeting

businesses that support reduced reliance on fossil fuels.

The American Sustainable Business Council said the 2021 law

known as Senate Bill 13 violates members' free speech rights by

banning Texas from investing in or contracting with businesses

that, in the state's view, "boycott" the oil and gas industry.

Texas is the largest and among the most prominent

Republican-led states to crack down on businesses whose

environmental, social and governance (ESG) policies it dislikes.

It is also easily

the largest U.S. oil producing state

.

State Attorney General Ken Paxton and Comptroller Glenn

Hegar, both Republicans who support the 2021 law, were named as

defendants in the lawsuit filed in Austin, Texas federal court.

Representatives from their offices did not immediately

respond to requests for comment.

In connection with the 2021 law, Hegar maintains a list of

16 financial companies and more than 350 investment funds whose

ESG policies he believes impermissibly target fossil fuel-based

energy.

Hegar added British bank NatWest ( NWG ) to the list two

weeks ago. In March, the Texas Permanent School Fund said it

would yank $8.5 billion of assets under management from

BlackRock ( BLK ), which is also on the comptroller's list.

The American Sustainable Business Council said Senate Bill

13 has harmed its corporate and individual members, who

represent more than 200,000 businesses, despite Texas portraying

itself as a business-friendly state.

Two members, Etho Capital and Our Sphere, have funds on

Hegar's list.

"The law violates the First Amendment by barring companies

from competing for state investments or contracting with the

state whenever Texas believes those companies espouse a

disfavored viewpoint about fossil fuels," the complaint said.

"Because SB 13 codifies viewpoint-based discrimination, it is

presumptively unconstitutional."

The case is American Sustainable Business Council v. Hegar

et al, U.S. District Court, Western District of Texas, No.

24-01010.