Have you noticed how “woke” many businesses have become lately? Whether it’s Bud Light and Target burning down its own customer base in order to score points with progressives or Blackrock’s leadership talking about how it “forces behaviors,” companies have all become beholden to the leftwing business framework of ESG.
ESG stands for environmental, social, and governance, and it acts as a method for assessing a company’s sustainability and ethical practices. This framework considers factors such as a company’s impact on the environment, its treatment of employees and stakeholders, and the effectiveness of its leadership and management practices. It’s become a tool of the left to control corporations and, in many cases, shake them down for cold hard cash.
It’s also a complete sham. The Washington Free Beacon writes, “ESG ratings are supposed to guide investors, and their money, toward ethical enterprises. But Big Tobacco has lapped Tesla in the ESG ratings race more than once: Sustainalytics, a widely used ESG ratings tool, gives Tesla a worse score than Altria, one of the largest tobacco producers in the world. And the London Stock Exchange gives British American Tobacco an ESG score of 94—the third highest of any company on the exchange’s top share index—while Tesla earns a middling 65.
How could cigarettes, which kill over eight million people each year, be deemed a more ethical investment than electric cars? It may have something to do with the tobacco industry’s embrace of corporate progressivism.
Companies like Altria have gone out of their way to emphasize the diversity of their corporate boards and the breadth of their social justice initiatives, from funding minority businesses to promoting transgender women in sports. But Tesla, whose executives are overwhelmingly white men, has resisted that bandwagon, going so far as to fire its top LGBT diversity officer last year.
The contrast highlights the hazards of a movement that lumps pressing health and environmental issues in with ideological fads. Early ESG efforts were laser-focused on “sin stocks”—companies whose core business was deemed immoral—including tobacco. But as ESG investing has ballooned, so has the number of variables used in ESG ratings, which now encompass everything from labor practices and carbon pledges to diversity trainings and human rights. That has created countless opportunities to game the system, experts say, and lets even the most sordid companies score points—and investors—by toeing the progressive line.”
Nothing has outed the reality of ESG more than President Joe Biden’s attempts to steer American 401ks into funds with high ratings and thus allowing financial planners to pour out retirement money into busiensses and non-profit groups that support his leftwing causes.
Like so many liberal programs, ESG does not come close to achieving its stated goals (outside of getting liberals paid).
New Conservative Post reported, “ESG companies tend to do worse than companies that focus on profits while also failing to do any better on their stated goals of helping the environment, promoting diversity, or fighting for “social justice.” The Harvard Business Review explained this earlier in the year, “To begin with, ESG funds certainly perform poorly in financial terms. In a recent Journal of Finance paper, University of Chicago researchers analyzed the Morningstar sustainability ratings of more than 20,000 mutual funds representing over $8 trillion of investor savings. Although the highest rated funds in terms of sustainability certainly attracted more capital than the lowest rated funds, none of the high sustainability funds outperformed any of the lowest rated funds.
That result might be expected, and it is possible that investors would be happy to sacrifice financial returns in exchange for better ESG performance. Unfortunately ESG funds don’t seem to deliver better ESG performance either.
Researchers at Columbia University and London School of Economics compared the ESG record of U.S. companies in 147 ESG fund portfolios and that of U.S. companies in 2,428 non-ESG portfolios. They found that the companies in the ESG portfolios had worse compliance record for both labor and environmental rules. They also found that companies added to ESG portfolios did not subsequently improve compliance with labor or environmental regulations.
This is not an isolated finding. A recent European Corporate Governance Institute paper compared the ESG scores of companies invested in by 684 U.S. institutional investors that signed the United Nation’s Principles of Responsible Investment (PRI) and 6,481 institutional investors that did not sign the PRI during 2013–2017. They did not detect any improvement in the ESG scores of companies held by PRI signatory funds subsequent to their signing . Furthermore, the financial returns were lower and the risk higher for the PRI signatories.”
Putting Tesla down on the environment while putting Phillip Morris higher on social responsibility reveals what this entire program really is: “a means to control capital, keep business people in line with the narrative, and, ultimately, control you.”
Elon Musk had a shorter summation:
ESG is the devil
— Elon Musk (@elonmusk) June 10, 2023