Editor’s note: The opinions expressed here are those of the authors. View more opinion on ScoonTV.
In recent years, the environmental, social, and governance (ESG) framework has gained immense popularity, becoming a guiding principle for businesses and investors worldwide. For those unaware, ESG investing “refers to a set of standards for a company’s behavior used by socially conscious investors to screen potential investments.”
At first glance, ESG seems like a noble approach. It aims to promote sustainable practices, social responsibility, and ethical governance. However, upon deeper examination, one cannot ignore the glaring flaws and potential adverse political and societal consequences that may result from its widespread adoption. ESG inadvertently creates an environment that discriminates against conservative and right-leaning individuals, companies, and viewpoints. This unintended bias must be acknowledged and addressed.
ESG frameworks often promote a specific set of “politically correct” social principles that align with liberal and progressive ideologies. It forces companies to adopt progressive ideals on issues such as diversity and social justice. This can lead to biased assessments and exclusions, where businesses that may excel in other areas but fail to comply with certain liberal ideals are penalized or overlooked. The subjectivity in defining social criteria, such as diversity and inclusion metrics, opens the door to favoritism, making the ESG system vulnerable to ideological manipulation.
The “E” in ESG stands for “environment,” advocating for businesses to prioritize environment-friendly initiatives. Liberals tend to be climate alarmists while conservatives often advocate for a more balanced approach to environmental policies, emphasizing responsible resource extraction alongside conservation efforts. ESG measures might disproportionately favor companies that align with a specific environmental ideology, potentially penalizing companies that adopt a more nuanced approach to environmental stewardship.
In some cases, the pressure to conform to progressive social standards may lead to tokenism and superficial representation within companies. Businesses may feel compelled to hire or promote individuals based on specific demographics rather than merit, undermining the principles of fairness and equal opportunity. This was the case in one lawsuit, Kafiti v Electrolux. The plaintiff alleged that his company, Electrolux, overlooked him for a promotion purposefully in order to adhere to their ESG goals of hiring female leadership to hit certain quotas. It has been documented that pushing “gender equality,” a liberal idea that is code for feminism, is a goal for ESG. Genuine progress toward diversity and inclusion should be driven by the desire to create a more equitable society, not by ESG metrics that prioritize appearances over substance.
Companies adhering to ESG guidelines also prioritize LGBTQ initiatives which are the opposite of conservative concerns. Companies such as Target are known to implement ESG policies that often target the LGBTQ community, forfeiting their ties with conservatives.
The “S” in ESG often assumes a one-size-fits-all approach to social issues, disregarding cultural and regional nuances. Different societies have distinct values and priorities, and imposing uniform standards across the board may not be suitable or sustainable.
Conservatives oppose some of the ways activists choose to pursue social justice. Instead of fostering positive change, rigid adherence to ESG’s social principles may lead to cultural clashes and resistance, impeding progress rather than facilitating it.
The “G” in ESG stands for “governance,” an issue of its own. Many conservative ideals revolve around the principles of free-market capitalism and limited government intervention. The use of ESG gives the government even greater power to skirt around the regular lawmaking processes. ESG may discourage investment in industries that conservatives argue are crucial for economic growth and job creation such as the coal and fossil fuel industries. For example, the non-profit organization Fossil Free California is advocating for state legislation to compel the California pension funds CalPERS and CalSTRS to divest from fossil fuel businesses, a move that both funds opposed last year. Another example is a law in California that required a particular percentage of women to sit on the board of directors but was ultimately overturned by the courts. Politicians should not be the ones making decisions on whether to emphasize board diversity or invest in fossil fuels.
Moreover, the governance component of ESG can be exploited to impose a homogenous set of corporate governance principles that cater to progressive sensibilities. This may inadvertently stifle creativity and innovation, as companies may prioritize compliance over adopting governance practices that genuinely suit their unique needs and culture. Instead of encouraging a diverse range of governance models that reflect different business contexts, ESG can promote a one-size-fits-all approach that may not be conducive to long-term success.
Suppose a prominent ESG rating agency gives a lower ESG score to a company that manufactures firearms and ammunition, citing concerns about the social impact of their products. This lower ESG score might negatively affect the company’s access to capital, investor interest, and overall reputation.
In this scenario, some republicans or conservatives might argue that the ESG assessment is unfairly biased against the company due to the agency’s potential political or ideological preferences. They could claim that the assessment is not solely based on environmental, social, and governance factors but also influenced by a bias against firearms manufacturers, which is a political and ideological stance.
The truth is that ESG metrics often rely on subjective assessments and vague criteria, leaving ample room for bias and ideological manipulation. This subjectivity may lead to the exclusion of more conservative businesses from investment opportunities or financing, potentially stifling innovation and economic growth. While the alleged intentions behind the ESG framework are noble, its widespread adoption without careful consideration of its potential pitfalls could lead to unintended consequences such as discrimination, prioritizing one ideology over others, and being used as political leverage. We should not blindly participate in the ESG program.
Subscribe to get early access to podcasts, events, and more!