Environmental, Social, and Governance, known widely as ESG, is a concept in finance that essentially uses “wokeness” as a measure of a company’s value or worthiness of investment. Thus, it is a form of financial malpractice. It is fundamentally dishonest to misrepresent a company’s financial soundness by subordinating financial considerations to political judgments and end-of-the-world superstitions.
But since corporate leaders may not be convinced based on what’s honest, here it is in the language they might understand: It could get you sued, and it could become very expensive.
This week, Utah began the much-needed pushback against the use of ESG principles by the financial analysts who look at the state’s bonds. Gov. Spencer Cox and other state officials, incensed by low and apparently arbitrary ESG ratings, wrote a letter to ratings agency Standard & Poors demanding that the ratings be rescinded. They demanded specific answers to several questions and asked that the state government be evaluated based solely on the soundness of its finances and its future prospects, not on the subjective, politically correct considerations that go into ESG.
“S&P’s ESG credit indicators politicize what should be a purely financial decision,” the Utahns write, pointing out how leftist regulators and ESG activists have tried to pressure banks not to work with the “oil, gas, coal, and firearms industries,” among others.
The letter notes that S&P is supposed to be analyzing finances and profitability and that “integrating this analysis with the political whims of the day is unacceptable. If [ESG indicators] are not political, but are instead financially material, then they would be captured in the traditional credit analysis. ESG indicators are, therefore, not necessary.”
And that’s only the start of it, because the ESG ratings are even more subjective than they sound. There is no reason to believe that any particular person’s version of ESG is actually “socially responsible.” For example, as the Utah letter notes, “Russian energy giants Gazprom and Rosneft outscored American energy companies ExxonMobil and Chevron on S&P’s ESG scale.” These Russian companies are partly state-owned and wholly controlled by Vladimir Putin, his cronies, and other war criminals who are slaughtering civilians in Ukraine. So why do they represent a more socially responsible investment than Exxon?
The truth is, ESG pressure is aimed at American companies because, unlike Russian or Chinese state-affiliated companies that have no intention to be socially responsible, there is some expectation that Americans might actually feel pressure to conform. Thus, ESG considerations do not contain objective information — they are, rather, motivational and rhetorical tools used to bully corporate boards to advance someone’s agenda. Whose? Well, maybe Putin’s, even if that wasn’t the original intention.
States and companies need to stand up, as Utah has, against the corruption of finance that ESG represents. Politics is for pundits and elected officials, not for the people directing your retirement savings. Left-wing fantasies about the world burning in 10 years cannot be allowed to interfere with sound investment decisions that help bring about the flourishing of individuals, families, and businesses.