Environmental, social, and governance (ESG) scores are the latest instrument by which a diverse group of influential global elites and international organizations are attempting to fundamentally restructure the global financial system and alter traditional financial methods of assessing risk. This attempted shift from “shareholder capitalism” to “stakeholder capitalism” hinges upon assigning companies, and soon individuals, arbitrarily determined credit scores which incorporate subjective and difficult-to-evaluate metrics assessing a firm’s commitment to climate and social justice issues.[1] Essentially, poorly scored companies receive lower ratings, and subsequently suffer from a loss of investment, while highly scored companies receive substantial capital in-flows.[2] ESG’s metrics have ostensibly been designed to combat systemic global problems such as climate change, racial inequality, and world hunger—in alignment with the United Nations’ Sustainable Development Goals[3]—though they instead centralize power and control in the hands of already-powerful economic and political titans, allowing them to dictate world affairs. Moreover, ESG severely restricts economic and social opportunities for individuals across the globe.
The below is a brief breakdown of each of the three categories comprising a company’s risk assessment based upon ESG, using one of the more heavily utilized ESG frameworks developed by the International Business Council (IBC).[4]
The E: Environmental
Environmental controls are at the forefront of all ESG systems. Companies are mandated to disclose all climate-related business activities. According to the IBC’s framework, companies must disclose all greenhouse gas emissions, implement the recommendations of the Task Force on Climate-related Financial Disclosures, report the number and area of sites owned, leased, or managed in or adjacent to protected areas and/or key biodiversity areas, and estimate water consumption in regions with high water stress.[5] Companies that do not adhere to these disclosures are scored poorly, and subsequently considered poor investment targets, especially by asset management firms such as BlackRock that use passive investments from clients to push political goals.[6]
The S: Social
ESG systems are also infused with social justice objectives. The IBC framework punishes companies for having disproportionate ethnic employee ratios, pay equality, and wage levels, among other metrics. For example, if certain corporate boardrooms are made up of qualified and capable individuals who have been subjectively determined to belong to an “unfavorable” social group, the company would be downgraded in its ESG score because of its non-diverse ethnic composition, whether or not it might be a socially valuable and profitable enterprise. Such a system undermines basic human rights, individual liberty, and free markets, while promoting judgment based upon one’s subjectively determined social group, ultimately leading to disharmony and inefficiency in business practices. It eviscerates individual advancement based upon demonstrated capability and merit, ironically promoting a form of discrimination the system has ostensibly been designed to combat.
The G: Governance
ESG’s governance component is highly correlated to its social counterpart, with the aforementioned example regarding corporate boardrooms highly related. IBC’s core metrics for governance include “setting purpose,” “governance body composition,” “anti-corruption,” and “protected ethnics advice and reporting mechanisms,” among others. These metrics are often qualitatively determined by an arbitrary body, typically selected and/or influenced by the coalition of asset management firms, financial institutions, insurance agencies, and regulatory authorities at the heart of ESG’s proliferation.[7]
Overall, while the supposed goals of this system are admirable on the surface, it supplants free markets and individual choices, which are the most effective methods to alleviate societal issues. Instead, under the guise of ESG, a small selection of elites—most of whom are not democratically elected—seek to promote their ideological goals while enriching themselves, perpetuating crony capitalism, and consolidating massive power.
[1] For more information, see: Justin Haskins and Jack McPherrin, “Understanding Environmental, Social, and Governance (ESG) Metrics: A Basic Primer,” The Heartland Institute, January 26, 2022, https://www.heartland.org/publications-resources/publications/understanding-environmental-social-and-governance-esg-metrics-a-basic-primer
[2] Mark Bergman, Ariel Deckelbaum, and Brad Karp, “Introduction to ESG,” Harvard Law School Forum on Corporate Governance, August 1, 2020, https://corpgov.law.harvard.edu/2020/08/01/introduction-to-esg
[3] United Nations, “Sustainable Development,” Department of Economic and Social Affairs, accessed July 12, 2022, https://sdgs.un.org/goals
[4] 8 Jonathan Walter, “Toward Common Metrics and Consistent Reporting of Sustainable Value Creation,” World Economic Forum, September, 2020, http://www3.weforum.org/docs/WEF_IBC_Measuring_Stakeholder_Capitalism_ Report_2020.pdf
[5] Ibid.
[6]Adrienne Buller, “With $10 Trillion in Assets, BlackRock Has Set a New Benchmark for Corporate Power,” Jacobin, March 3, 2022, https://jacobin.com/2022/03/index-funds-blackrock-vanguard-stocks-ownership-democracy-concentration
[7] For examples of this integration of ideological and economic issues, see (among many other sources): Glasgow Financial Alliance for Net Zero (GFANZ), “Amount of finance committed to achieving 1.5°C now at scale needed to deliver the transition,” November 3, 2021, https://www.gfanzero.com/press/amount-of-finance-committed-to-achieving-1-5c-now-at-scale-needed-to-deliver-the-transition/; Securities and Exchange Commission (SEC), “SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors,” March 21, 2022, https://www.sec.gov/news/press-release/2022-46; BlackRock, “The Power of Capitalism,” written by Larry Fink, 2022, https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter;
Jack McPherrin ([email protected]) is a managing editor of StoppingSocialism.com, research editor for The Heartland Institute, and a research fellow for Heartland's Socialism Research Center. He holds an MA in International Affairs from Loyola University-Chicago, and a dual BA in Economics and History from Boston College.
