More commentary on ESG, or: save our heart and soul!

A recent New York Times article by David Gelles explored “How Environmentally Conscious Investing Became a Target of Conservatives.”

Here are some extracts:

  • It’s been a widely accepted trend in financial circles for nearly two decades. But suddenly, Republicans have launched an assault on a philosophy that says that companies should be concerned with not just profits but also how their businesses affect the environment and society.
  • More than $18 trillion is held in investment funds that follow the investing principle known as E.S.G. — shorthand for prioritizing environmental, social and governance factors — a strategy that has been adopted by major corporations around the globe.
  • Now, Republicans around the country say Wall Street has taken a sharp left turn, attacking what they term “woke capitalism” and dragging businesses, their onetime allies, into the culture wars.
  • ,,, Representative Patrick McHenry, the North Carolina Republican who leads the House Financial Services Committee, announced the formation of a “Republican E.S.G. Working Group.” Republicans plan hearings this year at which conservative lawmakers are likely to grill executives from some of the nation’s biggest banks on their views about climate change, social issues and more.
  • There are some indications that the conservative pushback is gaining traction. Vanguard, one of the world’s largest investment firms, recently withdrew from the Net Zero Asset Managers initiative, an effort intended to get institutional money managers engaged in the fight against climate change.
  • BlackRock, the world’s largest asset manager, has been going out of its way to remind politicians that it still invests in fossil fuel industries, even as it supports efforts to reduce planet warming emissions.
  • …As the Securities and Exchange Commission considers a new rule that would require corporations to disclose their carbon emissions, industry groups and Republican lawmakers have been pushing to limit its scope.
  • Around the country, Republican state treasurers have been withdrawing billions of dollars from firms like BlackRock that they deem “woke.”
  • …“E.S.G. is a direct assault on the heart and soul of the free market economy,” said Andrew Olivastro, an executive at the Heritage Foundation. “I see E.S.G. as the broad umbrella for, you know, a nexus of the administrative state and the managerial class. And it has zero to do with advancing human progress around individuals and families.”

You know what else is a direct assault on the heart and soul of any economy? Irreversible environmental degradation and an unsustainable society, that’s what! The article has plenty more, with our old friends Elon Musk and Ron De Santis both making a predictable appearance. So how to react? Well, it’s tempting perhaps to think that the resistance will ultimately prove futile, that the logic of some version of E.S.G. investing is so overwhelming that everyone will ultimately come around; some version of the saying about the arc of the moral universe being long, but bending toward justice. But in the ascendant right-wing’s current form, poised to denounce all exercises of rationality and logic as enemies of freedom, the emphasis of well-meaning, prominent people on sustainability and diversity might as likely be taken as prima facie evidence of malignity. In this regard, ESG finds itself yoked in with “wokeness,” and 15-minute cities, and various notions of tolerance whether for gender questioning or critical exploration of history, as part of the rotating shooting gallery of targets for unquenchable resentment and anger.

The ISSB standards, although obviously a massive step forward in creating a common reference point for assessments and discussions in this area, will surely provide a juicy focal point for hostility if they come to seem as a compliance-heavy liberal cash grab (see the ‘beware the warrior accountants” warning that we talked about here). Unfortunately, there’s no way out of the inherent contradiction: implementing such a new reporting regime entails creating a large new category of well-paid professionals, therefore perpetuating the materialism and class distinctions that lie at the heart of our sustainability problems in the first place. Again, the fact that all this money and effort creates a high-quality reporting product might as easily be weaponized as a sign of self-serving excess and overreach as acknowledged as a reason to change one’s perspectives and practices.

And then, even if none of that comes to pass, there’s still the undernoted fact that better ESG disclosure is no guarantee of better underlying practices, and may in some cases facilitate worse ones (for an evergreen reference point, note how executive compensation disclosure, contrary to the “sunlight is the best disinfectant” palaver with which it was sold, did far more to facilitate a never-ending high-end pay spiral than to enforce discipline and restraint). Strong ESG disclosure might clarify for example that a particular environmentally toxic company, despite having few prospects in the long term, constitutes a strong short-term investing opportunity at its current depressed price (sure, many institutions might leave such money on the table, but in an environment where returns are only going to be harder to come by, it would be naïve to think everyone will). So, absolutely, we should celebrate the ISSB’s significant achievements. But we should do so concisely and humbly, without ever taking our eyes off the looming threats…

The opinions expressed are solely those of the author.

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