Written by Hudson Crozier
The worldwide political struggle over climate change returned to the news cycle in July when hordes of farmers in Sri Lanka revolted against their government over green policies. In the name of ESG guidelines, officials had imposed a ban on chemical fertilizers that supposedly harm the environment, though they are used by 90% of Sri Lanka's farmers. Consequences included mass crop failure, food shortages, and crippling inflation, which put the community in an uproar, prompting the president to resign and flee the country.
Sri Lanka, with one of the highest ESG scores of any country, is an extreme example of the same climate goals of elites around the world, including in the United States.
What is ESG?
In 2005-6, the United Nations developed criteria for evaluating corporations based on their adherence to political agendas, such as the fight against climate change or diversity, equity, and inclusion. This list became known as "environmental, social, and governance" (ESG), defined by Investopedia as "a set of standards for a company's behavior used by socially conscious investors to screen potential investments." Countries as a whole receive ESG "scores" just as the companies within them do.
The “climate change” narrative: Progressives who are advocates of the environmental guidelines want an economy less dependent on forms of energy that they believe are gradually overheating the planet, mainly carbon and other greenhouse gases. The global movement against this "climate change" sees ESG standards as one of many necessary steps to prevent an existential crisis for the human race. Depending on the country, corporations follow the standards either willingly to increase investment prospects or by law.
ESG-based investing has received more global popularity in recent years, bringing record increases in 2021. In the U.S., polling indicates that environmental concerns are a top priority for investors that frequently consider ESG, and investors who see ESG as "profitable" are almost always millennials and Democrats.
How have the environmental guidelines been criticized?
The scientific merit of the left's “climate crisis” narrative has been fiercely debated among experts for years, viewed by critics as alarmism. ESG guidelines based on the narrative face further objections.
Economically: Economists have pointed out that by diverting finances to goals that may not be profitable, companies are forced to compensate by raising prices. ESG priorities, then, contribute to inflation and hurt the economy. Higher gas prices are a definite consequence as companies have withdrawn from fossil fuel funding based on ESG considerations.
Scientifically: Even the effectiveness of ESG in accomplishing its main environmental goals has been disputed. Environmental policy expert Michael Shellenberger outlined how, thanks to ESG, abandoning fossil fuels around the world merely led to a greater reliance on coal, which is both more expensive and worse for carbon emissions. A former investing chief for BlackRock, the world's largest asset management firm, has similarly argued that these decisions are performative and shallow, concluding that "it's not totally clear if they create much positive environmental impact that would not have occurred otherwise."
ESG guidelines have discouraged the use of fossil fuels and diverted countries from investing in them, making them more scarce and expensive and impacting economies at large in the process.
What does ESG look like in the United States?
The Biden administration has been eager to expand corporate activism in the U.S., showing more enthusiasm for ESG than any prior administration in its fight against climate change.
In March 2021, the Department of Labor (DOL) announced it would not enforce two of the Trump administration's requirements that fiduciaries adhere to traditional concerns of investment risk and return. The DOL has since proposed to grant explicit permission for fiduciaries to incorporate ''climate change and other ESG factors'' and even wants to require it as a factor in employee retirement funding.
Biden's Securities and Exchange Commission (SEC) also established a task force for more strict oversight of "ESG-related misconduct," ensuring that companies will properly disclose ESG information to investors. The SEC has indicated interest in smoothing out the disclosure process by helping to create a single, global standard for ESG criteria.