State Investing, Not ESG, Is the Problem

Writing at The Hill, Alan Brownstein, of UC Davis exposes a hole large enough to drive a truck through in some conservative objections to the left wing policy fad/clever corporate power grab once known as "corporate responsibility" and now known -- for the moment, at least -- as environmental, social and governance (ESG).

For the sake of argument, let's assume he's characterizing these arguments correctly, and not just building a straw man.

Some on the right, he asserts, dislike "woke" ESG on grounds boiling down to the fact that it is secular:

Chik-Fil-A doesn't open on Sundays, and its owners should be free to keep leaving money at the table if they wish to do so. It would be wrong if the government forced them to do so. (Image by Walker Kinsler, via Wikimedia Commons, license.)

The thrust of the criticism is that for-profit, commercial corporations should base their decisions solely on conventional business concerns -- that is, interests that further the purpose of making money for the enterprise. Decisions grounded in environmental values or the betterment of society or programs designed to bring marginalized groups into the company and create a workplace environment where they can thrive are problematic distractions at best. To ESG critics, these are costly, misguided distortions of the profit maximizing free enterprise system.

The focus of these challenges to allegedly "Woke"-influenced decision making are secular values or at least values that are expressed in secular terms. [bold added]

Brownstein then correctly notes that the same people are fine with Hobby Lobby operating based on their religious beliefs, something the Supreme Court has affirmed them to have the right to do. (In addition, he also notes that many of the anticapitalist "values" of ESG are similar to religious values, which is hardly surprising to me.)

Brownstein is not wrong about any of this, and it is true: Every company operates based on some kind of ethical framework. Even the idea of maximizing profit rests on an ethical framework.

The problem with conservative attacks on ESG, as with so many other issues today, is that ESG is a complex issue, and that tribalism causes people to be blind to its complexity at the cost of seeing what's really wrong.

Here, the problem isn't so much that a company takes ideological considerations into account in its business practices so much as that governments -- such as state-run pension funds -- are imposing ideological agendas on businesses via this financial control.

Brownstein might stop slapping himself on the back for his Hobby Lobby gotcha, because while that decision upheld the company's right to act on its owners' religious convictions, it did so because government is supposed to be separate from religion.

This cuts both ways.

More broadly, government has no business forcing an ideology -- religious or otherwise -- on anyone.

Let's consider how this applies to ESG. Hint: It doesn't mean that it's a-okay for, say CalPERS, as an owner, to make Exxon cap all its wells, "leave it in the ground," and start giving away solar panels at a loss.

Following from Hobby Lobby, when state pension plans -- be they owned by the states or simply run by them (I don't know exactly which, but I do know that states appoint their boards in at least some cases) -- starts making or "encouraging" companies to change how they operate based on ideological issues (such as causing oil companies to get behind green anti-fossil fuel initiatives), this amounts to the state adding the further injury of lower profitability for such companies to the original one of what amounts to nationalization by stealth.

These are both bad, but they are not the essence of what is wrong with ESG, which is a further wrong than state ownership and mismanagement.

State interference in ideology is the real problem with ESG. A truly free market would allow investors to make clear-eyed decisions about where to place their money and whether they want to earn higher returns or support political causes with their money.

But when the state sets up a retirement fund with the supposed purpose of reducing taxpayer costs of a pension plan by high returns, it should not then use that money to support causes the retirees may or may not outright oppose, and finance the shortfall by taxes on others (wrong to begin with!) whose opinions also aren't being consulted.

Of course, any investment strategy has to have an implicit basis, so there is no way for a state to run a pension plan without running afoul of separation of ideology and state.

The proper response by lovers of liberty is not -- as the GOP has done so far -- merely object to the particular ideas that underly some state investment strategies, but to work towards the real solution, namely to privatize the investment sector.

This won't eliminate ideologically-driven companies from the marketplace (although a free market would cull unprofitable ones), but it will end the gross abuse of government officials improperly forcing their political beliefs into corporate boardrooms throughout the economy all at once, as we see them doing today.

-- CAV