The acronym stands for Environmental, Social and Governance. It is typically applied to businesses, particularly large publicly traded ones, and is used to rate their performance in these three categories. “Environment” grades a company’s emissions and sustainability commitments. “Social” includes diversity and inclusion practices as well as community engagement. “Governance” applies those standards to the company’s board and officials in addition to addressing problems of misrepresentation or fraud among management. The push for standardized ESG reporting is characterized as a groundswell from concerned investors. Is this really the case? Or are we really witnessing an attempt to impose a radical agenda on society?
Corporations have a practical reach far beyond that of government. Not in overall authority but commonplace, daily interactions. For instance, which is higher, the percentage of people who vote or the percentage of people who buy groceries? Add to that any other financial transaction you can think of. Our elected officials have the disadvantage of being subject to removal every few years. Agendas can be reversed, policies undone. But corporations, like many bureaucratic, unelected government agencies that have been politicized in recent years, are in a position to force an agenda in a way that politicians can only dream of.
To the uninformed, corporations might have an air of neutrality. Why should they be involved in issues beyond delivering a quality product to their customers? While a business owner could expect a measure of freedom to promote and support issues they feel strongly about, ESG goes far beyond that. A measure to require ESG reporting passed in the House of Representatives (H.R. 1187) by the narrowest possible margin against bi-partisan opposition last summer, illustrating how extreme and invasive some of the requirements are. The bill stood no chance in the Senate.
Since then, the ball has been picked up by the US Securities and Exchange Commission (SEC) which has the power to make rules for publicly traded corporations. Now in the final stages of public comment, a new rule for “The Enhancement and Standardization of Climate-Related Disclosures for Investors” will likely go into effect in the near future. The underpinning logic, according to SEC Chair Gary Gensler, is that investors “support climate-related disclosures because they recognize that climate risks can pose significant financial risks to companies.” This allows them to cast their actions as mitigating risk rather than forcing compliance.
Companies will be required to report about potential impact to their business models due to climate change as well as what measures they have taken to alleviate those problems. Additionally, they will have to report on their own emissions annually. Scope 1 will cover greenhouse gas emissions by the company itself. Scope 2 documents additional emissions from electricity usage, etc. Scope 3 goes even deeper, covering emissions over the entire supply chain of the product or service.
While not technically forcing a company to change any portion of its operations, this reporting mechanism tacitly forces the acceptance of “man-made climate change” dogma. It will open companies up to fines and penalties for “green washing” their data, as has already happened to many who self-report. It will also make it easier for activists/investors to target those who do not comply.
Obviously investors, like consumers, should be allowed to make their own decisions about what kinds of businesses they support. However, many investments are not made by individuals. Sovereign Wealth Funds, Pension Funds and Hedge Funds often have deep enough pockets to literally move markets. These are the types of firms that will be forced to give the most consideration to ESG concerns. For instance, the Government Pension Fund of Norway, considered the world’s largest with assets valued at over $1 trillion, makes many of its decisions for “ethical” reasons. They have boycotted many stocks over environmental concerns and even dropped Walmart in 2006 for “breech of human and labor rights.”
That is the proverbial tip of the iceberg. Companies are controlled by their board of directors but can be obligated to specific actions by shareholder resolutions. Reuters reported an increase of over 20% in the total number of shareholder resolutions based on ESG issues in the first quarter of 2022. Additionally, board members who are not inclined to concur with arbitrary stipulations that negatively affect the bottom line can be removed. This is exactly what happened to Exxon’s director last year.
Massive investment firms such as BlackRock or Berkshire Hathaway have, or control, enough assets to force these types of shareholder resolutions virtually on their own. They publicly brag that they are doing so. The results? Resolutions for “Paris Alligned Climate Lobbying” at FedEx, “Racial and Gender Board Diversity” at a major medical equipment supplier, “Wealth Inequality” at PetMed Express… The list goes on and on.
Morgan Stanley has been prohibited from lending to any company that might develop new fossil fuel assets. Amazon is in the cross-hairs over political lobbying, sustainable packaging and gender and racial pay gaps. Chevron has been targeted over its holdings in Myanmar, Facebook for “exacerbating systemic discrimination” with its advertising algorithms and Twitter is being forced to nominate a board member with human/civil rights expertise to “avoid causing or contributing to widespread violations of human or civil rights, such as voter suppression, disinformation, or violence.”
Many other investment firms tout their ESG friendly assets in an attempt to attract new investors. Other funds only buy stocks that meet certain criteria. Have you noticed the changes in advertising over the last year? Featuring “underrepresented” communities, minorities and windmills is not meant simply to attract a specific clientele. It is a way to pad ESG metrics and protect share values in this brave new world!
ESG ratings can and have been weaponized for purposes far beyond the issues they claim to address. Electric car maker Tesla was kicked out of the S&P 500’s ESG index recently for “lack of a low carbon strategy.” Strange isn’t it? Aren’t electric cars constantly touted as a green solution for the future of our planet? Tesla’s stock shed 6% that day. And there is a certain individual whose wealth is primarily based on that stock…
Should the full scope of ESG reporting become mandatory it could cause serious capital flight from corporations that do not embrace a radical leftist agenda. It goes far beyond allowing investors to make informed decisions. It requires businesses to function inside of a social justice paradigm. It would grade a board of directors not on its effectiveness, but on its diversity. To reward businesses that embrace inclusion and the queer agenda with a “higher score” than those who do not is the antithesis of freedom.
It is a blatant attempt at social engineering. It shifts the conversation from “Should we?” to “Do it or else!” It has far more to do with punishing non-compliance than it does with diversity or acceptance. In its current form, our government could never force through such radical changes. Supranational jurisdiction is part of the plan. Finance ministers from the G7 countries already agree on a framework for worldwide reporting standards. Implementation is one of the last hurdles. Should the endeavor to enshrine ESG ratings prove successful, the future will be anything but tolerant.
