The Latest Arguments Driving the Anti-ESG Movement Are Having an Impact on Optics
According to published reports, the business world is moving away from using the term ESG (environmental, social, governance) and replacing it with terms such as “responsible investment.” Here are some of the latest arguments against ESG.What Is ESG and Stakeholder Capitalism
The Latest Cases Against ESG
Opposition to the concept of ESG, mostly from the right but also from the left, has apparently caused many companies to stop using the term or even stakeholder capitalism to describe their responsible business practices, according to a recent article by Chip Cutter and Emily Glazer in the Wall Street Journal article, The Latest Dirty Word in Corporate America: ESG.
“Following years of simmering investor backlash, political pressure, and legal threats over environmental, social and governance efforts, a number of business leaders are now making a conscious effort to avoid the once widely used acronym for such initiatives. On earnings calls, many chief executives now employ new approaches. Some companies, including Coca-Cola, are rebranding corporate reports and committees, stripping ESG from titles. Advisers are coaching executives on alternative ways to describe their efforts, proposing new terms like ‘responsible business.’ On Wall Street, meanwhile, some firms are closing once-popular ESG funds as interest fades.”
Neither the term ESG or stakeholder capitalism appear on the agenda for the World Economic Forum in Davos this month. The World Economic Forum was one of the first organizations to discuss the topic, as early as the early 1970s when it was founded.
What Is ESG and Stakeholder Capitalism
As reported in this 2023 ESM article, Anti-ESG Backlash Forces Healthy Focus on Value Creation Instead of Greenwashing, the backlash apparently was driven by the Business Roundtable August 2019 statement on the purpose of the corporate, greenwashing by corporations during the height of racial tensions associated with the murder of George Floyd, and confusion deliberately sowed by opponents about the definition of stakeholder capitalism and ESG, both of which date back decades before the concept of “woke.”
A review of decades of research on stakeholder capitalism finds no reference to diverting profits away from shareholders’ interests to line the pockets of special interests but rather is about “enhancing returns for investors only by creating value for customers, employees, supply chain partners, and communities,” according to a definition published by Alex Edmans, Professor of Finance at London Business School in collaboration with the Enterprise Engagement Alliance, in Forbes in 2020. Likewise, contrary to implications made by opponents, the term ESG and the related concept was first published in a 2004 report “Who Cares Wins” by the United Nations focused on the connection between responsible investing and better long term returns both for investors and society. The report was endorsed by none other than some of the world’s leading financial institutions long before greenwashing was even a concept: ABN, Amro, Aviva AXA Group, Banco do Brasil, Bank Sarasin, BNP, Paribas, Calvert Group, CNP Assurances, Credit Suisse Group, Deutsche Bank, Goldman Sachs, Henderson Global Investors, HSBC, Innovest, ISIS Asset Management, KLP Insurance, Morgan Stanley, RCM (a member of Allianz Dresdner Asset Management), UBS Westpac.
The Latest Cases Against ESG
Here are some of the latest arguments against ESG over the last few weeks.
American Institute for Economic Research. In this recent podcast episode of Liberty Curious with content developer Kate Wand and Paul Mueller, Senior Research Faculty at AIER, “who specializes in defending freedom and combatting collectivism,” writes: “ESG has been perniciously changing the way corporations, governments, NGOs (non-governmental organizations) and institutions operate. This ideological framework synonymous with stakeholder capitalism has become the subject of scrutiny and public backlash, but nonetheless continues to dominate.”
He adds, “The conversation raises concerns about the potential for eco-dictatorship and the threat ESG poses to freedom and individualism. In this conversation, Paul Mueller and Kate Wand discuss the totalitarianism of climate alarmists and the loss of individualism in the ESG movement. They explore the advocates for ESG, such as the World Economic Forum, and the pushback against ESG, including Larry Fink’s change in stance. They also delve into the philosophical elements underlying the green movement and the potential future of ESG. The conversation highlights the importance of transparency, the value of nuclear energy, and the need to focus on adaptation rather than prevention.”
Just the News. The article, “Green Energy Funds Are in Decline Sending Investors Fleeing—Will it Be the End of ESG,” reports on the difference between shareholder capitalism and stakeholder capitalism with no clear definition of stakeholder capitalism based on an interview with the CEO of Strive Asset Management, founded by the presidential candidate Vivek Ramaswamy.
“Over the past few decades, Strive explains in a white paper, American shareholder capitalism has outperformed European-styled stakeholder capitalism by 3.25%. The company explains the contrast to stakeholder capitalism, which holds that corporations should prioritize not just shareholders, but anyone affected by their actions."
The article continues, “Strive CEO Matt Cole, who took the position after co-founder Ramaswamy resigned to pursue his presidential campaign, explained on a podcast in July that when he was a portfolio manager with the California Public Employees' Retirement System (CALPERS) he saw stakeholder capitalism incorporated into the system’s investment practices. “I became very interested in this subject, and it eventually led me to Strive. But I saw that as the biggest fiduciary breach has ever happened in America, Cole said. Shareholder capitalism has an advantage of a 3.25% return compared to stakeholder capitalism and that can have an enormous impact.”
National Review. In a recent article, “ESG Critics Good and Bad,” Andrew Stuttaford writes, “The investors who lead ESG have other priorities. Then again, they are, for the most part, playing with other people’s money. Moreover, they will often be drawn from a similar managerial class to those running large companies, with whom they can thus be expected to share, at least to some extent, political and cultural values. This helps explain the growing adoption of stakeholder capitalism by the C-suite. Stakeholder capitalism replaces shareholder primacy with a corporate duty to a shifting list of stakeholders. This list does include shareholders, but only as one class of stakeholder.
“And ESG, as it now stands, is not about maximizing return or reducing risk (it is unlikely to do either over any sustained period), but about the pursuit of using a purported investment discipline to pursue a generally progressive agenda. Stakeholder capitalism takes a different route towards the same end, but once again with other peoples’ (in its case, shareholders’) money. ESG, it should be added, can be a good source of income for those who promote it, and a source of political power too. Stakeholder capitalism can also reward those who adopt it with power and money.”
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