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This Labor Day, reflect on why ESG is bad for workers
By Stefan Padfield
Recently, the California State Retirement System (CalSTRS) doubled down on its pledge "to achieve a net zero investment portfolio by 2050, or sooner." CalSTRS defended this decision by arguing that the steps it is taking to achieve net zero carbon emissions "are rooted in its mission to provide California's public school teachers with a secure financial future."
Unfortunately, the utopian quest for net zero – along with other related initiatives falling under the umbrella of environmental, social and governance (ESG) factors, are more likely to financially harm workers than help them. To see why, let's do a bit of digging into these ESG factors.
CalSTRS' net-zero commitment squarely fits into the "environmental" bucket of ESG. Caring for the environment sounds great, so what's the problem?
First, imposing additional costs on businesses, which net-zero commitments clearly do, is unlikely to make the retirement portfolios of workers invested in those companies more prosperous.
Second, divesting from companies that fail to meet CalSTRS' net-zero commitments should leave CalSTRS with a less profitable portfolio compared to investors who do not deny themselves such large swaths of potential investment opportunities. Certainly, if CalSTRS really cared about the retirement portfolios of its members then it should have been piling into fossil fuel stocks at the start of the Ukraine war.
Finally, even when a green energy investment strategy does beat the market, we need to be concerned about an ESG bubble being created by the trillions of dollars in Green New Deal subsidies distorting the market in the name of inflation reduction. In case you need a reminder, it is the main street workers who frequently suffer most when stock market bubbles burst and their retirement nest eggs are cut in half or worse.
Turning to the "social" part of ESG, we can start by noting that relevant initiatives here include those related to diversity, equity, and inclusion (DEI). Again, those are concepts we should all be able to get behind, so what's the problem?
First, DEI initiatives often involve dividing employees along the lines of race, sex and other specified identities — and then allocating rewards and burdens based on those identities.
For example, a workplace DEI training program might preach to attendees that all white people are oppressors and all black people are oppressed. Or, a corporation might proudly announce that new mentorship opportunities are available, but straight white males need not apply. One would have to be living in a neo-Marxist bubble to not recognize that this will do nothing but increase resentment among workers, not to mention reducing corporate efficiency in myriad ways when people are pushed into positions they are unprepared for in order to satisfy soft or hard identity-based quotas.
All of which leads us to the "governance" part of ESG. Governance issues can be relatively benign, such as limiting overboarding by directors or separating the CEO and board chair positions.
But the question of corporate governance deals more broadly with the issue of what goal the corporation is to pursue and who gets to decide how to pursue that goal. If CalSTRS' goal is to grow the retirement accounts of workers, then profit maximization seems to be a pretty obvious corporate goal to advocate for.
What should be avoided like the plague is elevating political and ideological agendas above a focused pursuit of producing great products and providing great service. ESG proponents will argue that all they are doing is providing a more nuanced way of calculating expected value, but they give their hand away in practice in at least a couple of ways.
First, one can routinely see ESG proponents criticize legislation designed to limit investment decision-making to pecuniary/financial factors. But if ESG is simply about better expected value calculations, then such legislation should create no problems for ESG advocates.
More likely, it is precisely because ESG is used for something other than expected value calculations (i.e., advancing various political agendas) that these proposed statutes are challenged.
Second, the next time you come across an ESG proponent's wish list of initiatives, ask yourself how much the various proposals differ from the election platforms of Elizabeth Warren and Alexandria Ocasio-Cortez. I submit you will find little, if any, daylight between them – and any suggestion that this is pure coincidence is ludicrous.
A final point: A lot of people have been asking what went wrong at Disney, Target and Bud Light recently when all these companies seemed intent on alienating significant portions of their consumer base by embracing transgenderism in various ways. ESG actually provides an answer here as well.
Because of the pressure exerted on corporations by various ESG proponents ranging from asset managers to proxy advisers to government officials to pension funds like CalSTRS, corporate decisionmakers have become more concerned with their ESG scores than their bottom line. After all, if the ESG proponents have enough power to keep you in office (not due to efficient corporate democracy but as a result of undue influence) – or at the very least have sufficient connections to get you another job – then you'll focus more on pleasing those ESG proponents.
One of the ESG scores that ESG proponents love to focus on is the Human Rights Campaign's Corporate Equality Index, which essentially rewards corporations for taking ever more radical positions on sex and gender. That's a problem, and another reason why supporting workers means pushing back against ESG.
Stefan Padfield is an associate at the National Center's Free Enterprise Project (FEP), whose stated goal is to oppose the woke takeover of American corporate life. This first appeared at Newsmax and is reprinted with the kind permission of the NCPPR.