Companies with ESG policies – including financing parties investing in 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.” Further, “governmental entity” is succinctly defined as “a state agency or political subdivision of this state.”
In the renewable energy sector, there is the question of whether certain players in the field will fall within the scope of the new law. Financial institutions with ESG policies that serve as tax equity investors in renewable energy deals could theoretically be subject to the law when the wind and solar projects in which the financing parties invest enter into contracts with governmental and quasi-governmental entities. It is a stretch, though, to view tax equity investors, via tax equity contributions and ownership interests in renewable energy project companies, as falling within the definition of a “company” as provided in the bill. In the unlikely event that these financing parties do constitute “companies,” then the renewable energy scenarios that could implicate the law are endless: project contracts with governmental off-takers such as a city, lease agreements to lease property from the pseudo-governmental University Lands, and road use agreements and decommissioning agreements with counties, to name a few.
The extension of the new law to tax equity investors, though, is a purely theoretical exercise at this point, as there is no guidance suggesting the law will cover these parties and these scenarios. For now, it is likely that tax equity investors are relatively safe. As with any potentially wide-reaching change in law, however, only time will tell how Senate Bill 19 will be applied in practice.