Originally posted March 20, 2023.
Doing Well by Doing Good?
There have been encouraging signs of a pushback at ESG. In NRO Andrew Stuttaford explains how early signs of resistance have produced something of a panic among ESG defenders, from Mike Bloomberg to Al Gore to the Financial Times.
And naturally, the New York Times too is doing its bit. Indeed, the paper has come out with a podcast: What is E.S.G., and Why are Republicans so Mad About It?
The principle behind E.S.G. is that investors should look beyond just whether a company can make a profit and take into account other factors, such as its environmental impact and action on social issues.
But critics of that investment strategy, mostly Republicans, say that Wall Street has taken a sharp left turn, attacking what they term “woke capitalism.”
Unfortunately, continues Mr. Stuttaford, ESG is not that. Nor, he writes, is it “Woke capitalism.” It is far easier for “defenders of ESG and stakeholder capitalism to frame the debate as “another chapter in the culture wars than to address the serious threat to both property rights and to democracy that their efforts represent.”
The reality is that ESG was not marketed as an investment technique that looked beyond profit, but as one that would either increase profit, or reduce the risk attendant on securing it.
Unfortunately, whether it does that is debatable at best or simply not true. I have discussed this on various occasions, including here, here and here. Writing recently in the Wall Street Journal, Andy Puzder (who does use the term “woke capital”) took a slightly different tack, looking at the performance of companies that were politically neutral against ESG-registered funds. The results were not good news for the ESG camp, but as Puzder concludes, this should hardly come as a surprise:
A major part of the story – that investors should look beyond just whether a company can make a profit and take into account other factors, such as its “environmental impact and action on social issues” – has been left out of the Times’ description of ESG.
The reality is that ESG was not marketed as an investment technique that looked beyond profit, but as one that would either increase profit, or reduce the risk attendant on securing it.
The (very) superficial appeal of this argument makes little sense.
The timetable on which “society” — which really means Western society (many other societies seem distinctly less interested) — will stop “burning fossil fuels” is, to say the least, uncertain. Plastics? Fertilizers? Natural gas? All gone you say. By when?
There is also the small matter of the fossil fuels used in the manufacture of the technologies that are, allegedly, going to save the planet. And then, of course, there is the question of supply and demand. If less of something is produced due to political or regulatory pressure, but the demand for it shrinks at a slower pace, then the price of that product may well rise rather than fall. And that, in turn, may well boost the profits of those who produce it and thus, quite possibly, increase their shareholders’ return.
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