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ESG Hits a Wall

Last week marked a pivotal turn in the ESG (Environmental, Social, and Governance) movement. As Politico’s ClimateWire reported, investors at three major banks (Citi, Wells Fargo and Bank of America) defeated a dogmatic effort to ban investments in fossil fuel expansion. The vote wasn’t close. According to ClimateWire, “Just under 13 percent of shareholders backed the fossil fuel-related resolution at Citigroup, while 11 percent supported the proposal at both Wells Fargo and Bank of America.”

>>>READ: It’s Time to Let Free Markets Unleash Our Abundant Sources of Energy

Progressive activists tried to put a positive spin on ESG’s collision with reality. Jason Disterhoft, a senior campaigner at Rainforest Action Network, said, “Today’s votes put the question of fossil fuel expansion firmly and irrevocably on the table for three of the world’s top four banks … Ending fossil expansion is a matter of when, not if. Citi, Wells Fargo and Bank of America must recognize this direction of travel and make ending fossil expansion a precondition for financing for all clients.”

If a private company wants to communicate a set of ESG goals and values and then submit itself to the wisdom of crowds – individual consumers in a truly free market – it should be allowed to do so. Conservatives err when they respond to progressive authoritarianism with authoritarianism of their own. An important caveat: taking away special privileges for corporations and creating a level playing field isn’t “canceling” companies. 

Yet, ESG has a very dark side. For some activists, ESG is a 1692 Project for the environment, the year when the witch-weary townspeople in Salem thought it was a good idea to dunk people in water to see if they would float. This week, executives said “no, thank you” to the water excursion organized by the dogmatic ESG left.  

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Utah Treasurer Marlo Oaks offers a concise and accurate critique of this modern dogma: “ESG is about controlling and forcing behaviors. It attempts to do through capital markets what activists and their government allies have been unable to do through democratic processes.”

Dictators love ESG because it can be dictatorial. When otherwise free societies chose top-down authoritarian measures that ban certain forms of energy, they slow economic growth, hurt poor people, and delay clean energy innovation. When one or two fund managers dictate terms of behavior that isn’t capitalism but crony capitalism and tyranny. 

>>>READ: As Energy Prices Rise, the Private Sector Steps Up

Apart from far left ESG activists, the world is going through a Great Energy Awakening, a realization that relying on bad actors for energy makes the world a dangerous and dirtier place. Reducing fossil fuel supplies, as ESG activists demand, would strengthen Putin and make it easier for him to commit war crimes and threaten the world with nuclear weapons.

The best way to counter ESG fervor over the long term is to support policies that advance economic and political freedom. As we’ve shown, free economies are twice as clean as less free economies. Top-down command and control movements and policies won’t reduce emissions faster than free societies regardless of how well-intended ESG managers may be. In fact, bad climate policy is itself an environmental risk that can be more damaging than climate change itself. Trusting individual consumers to make choices, instead of browbeating them with dogma, is the wiser approach. 

The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.

Copyright © 2020 Conservative Coalition for Climate Solutions

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