ESG is deadly

For business and for people

If you look up ESG to find a definition, you’ll find some variance, but for the most part, you will find it is allegedly to benefit stake-holders by holding companies accountable for being environmentally responsible (impact on “climate change”), socially responsible (think Diversity, Equity, and Inclusion), and executing responsible governance (DEI applied to the board, as well as “sustainability”). Visit any bank website, and you will find at least a page, if not more, dedicated to the bank’s ESG efforts. While all of these may seem virtuous pursuits, they are in reality very costly platitudes. Though businesses have an obligation to operate in a way that doesn’t toxify the environment in which we live, that treats its employees properly, and that looks after the interests of its investors, not all corporations can be shoehorned into an arbitrary ESG framework. Worse, financial institutions that base investments on ESG scores put their stake-holders at greater risk, as is evidenced by the damages many companies have suffered. Each of the three pillars of ESG bring risk in and of themselves; merge them together, and they become disastrous.

As stated in the definition of ESG, the “E” stands for “environmental.” This measures a company based primarily on its “carbon footprint” - the alleged impact the organization may have on alleged man-made climate change. In other words, don’t invest in carbon-based fuel products. The problem is, so many products are dependent upon carbon-based fuels or “fossil fuels” and their byproducts that it is impossible to get away from them. Avoiding investing in them raises the prices of all of the associated products, which has impact on the entire supply chain. Such avoidance also makes energy more expensive which leads to the disadvantaged potentially going without electricity, without heat in the winter (which can lead to death) or without cooling in summer (which has even more potential to lead to death). The climate changes with or without man’s influence (mostly without). Believing that man has such a tremendous impact on the climate as to be an existential threat, or can somehow control the climate as to avoid such threat, is the height of human arrogance. Basing investment upon such arrogance is simply stupid and reckless. Inexpensive and ubiquitous energy is the foundation of modern society; without it, we would revert to living like those in the 1800s, which for most today would mean extinction. The “E” in ESG is quite literally deadly.

When it comes to social, DEI is a DIsastEr. Being socially responsible is important, when social responsibility is properly defined. Providing a safe and healthy workplace, ensuring employees have opportunity to develop their skills, and making hiring decisions based on a candidate’s potential to benefit the company are all good. Subscribing to DEI, which means based on extrinsic properties such as skin color, gender or sexuality, rather than skill to fulfill a corporate need, is a recipe for failure. Silicon Valley Bank is a prime example of what happens when DEI is more important than job performance. SVB’s risk officer was so busy with diversity efforts that she failed to do her job of managing the institutions investment risk (https://www.dailymail.co.uk/news/article-11854497/SVB-hired-woke-board-obsessed-diversity-invested-5BN-healthier-planet.html), and the bank has crashed spectacularly. Is it any surprise that, when a risk officer is more focused on “Pride” than prudence, the walls come tumbling down? The net effect is many tech companies unable to cover payroll because their deposits were not properly secured; therefore, many employees will, at least for a time, be without pay, and many who had deposits in SVB will never see their funds returned.

As for governance, well, DEI applied to a board of directors is even more detrimental than using it for general hiring. A board of directors is a corporation’s primary guiding group. They are responsible for protecting and growing the investments of the company’s shareholders. If the people hired to direct the activities of a company have no qualifications other than skin color or sexual proclivities, the business will operate like a small boat without an anchor at sea during a hurricane. This is, however, what it amounts to. An article from Harvard Business Review states “The U.S.-based stock exchange [Nasdaq] will now require all listed companies to disclose board-level diversity using a standard template, to have at least two directors from underrepresented groups, ‘including one who self-identifies as female and one who self-identifies as either an underrepresented minority or LGBTQ+,’ or explain why they do not.” This is forced diversity based on external factors, or as the title of the article labels it, “tokenism.” True diversity is selecting people based on qualification for the job who have diverse backgrounds - education, culture, and thought - not selecting people based on superficial factors.  Aside from technically violating EEOC guidelines, hiring based on intersectionality will lead a business to the intersection of woke and broke (I again point to SVB as the neon-bright example).

ESG is really Entrepreneurially Suicidal Guidance. It is a cudgel used by government regulators to force businesses to implement policies that the bureaucracy is unable to accomplish through legislation. It diverts a company’s energies and efforts from its main goal of providing products and services in order to deliver a profit. None of this is to say that a company should hire all men, or that they all should possess equivalent levels of melanin. Companies go into business for a reason - provide products or services in order to turn a profit for the business’ shareholders. As such, hiring people qualified to ensure that outcome must be the aim of the human resources department. Likewise, running the business in such as way as to ensure that outcome must be the primary guiding principle for leadership. Conforming to arbitrary guidelines based on political agendas is not only bad business, it is socially irresponsible and can lead to literal death of both businesses and people.