ESG & CEOs

By Andrew Stuttaford

Wednesday, January 04, 2023

 

The obvious way to read a debate (not) is by reading its concluding section, but the other day, I noticed a piece by Samuel Gregg that was the final installment of a forum organized by Law & Liberty on ESG (an investment discipline in which companies are rated by how they measure up to various environmental, social, and governance criteria). I’m looking forward to reading the other articles included in the forum soon, but Gregg’s finale makes for a great start, not least for his comments on the role of the CEO.

 

Gregg notes the growing critique of ESG “from within corporate America.” That may be optimistic, although it does seem that some in the C-suite are less willing to associate themselves with ESG’s broadly progressive agenda than in the past. There have been signs, too, of consumer pushback (Gregg cites the example of Disney), and of disillusion among those investors who were persuaded to buy ESG products by the most dishonest of all the lines that have been used to peddle them — which is that ESG is a way of doing well by doing good. That was, except during the ESG bubble, never credible.

 

The whole article is well worth reading, and, as Gregg is discussing arguments put forward by other contributors to the forum, necessarily wide-ranging. One issue addressed by Gregg is this:

 

I don’t doubt that one of ESG’s attractions is its appeal to people who are uneasy about working for enterprises that are in the business of making money.

 

The obvious retort is that those discontented employees should work somewhere more suited to their ideological biases. Why should shareholders, the owners of the business, underwrite the philosophical sensitivities of those who have chosen to work for them?

 

But that obvious retort is not the way to win a wider argument that, judging by the tenor of our times, is badly needed.

 

And so Gregg argues that CEOs:

 

should underscore that it is through pursuing profit that businesses create possibilities for individuals to exercise their talents cooperatively with others, provide people with the incomes that they need to pursue many non-material goods, and help maintain and grow the material resources that any society needs if it is to prosper in material and non-material ways.

 

Certainly, these good things are realized indirectly and even somewhat unintentionally when a business pursues profit. Nonetheless, CEOs should stress that it is through pursuing profit that commercial enterprises contribute to society’s general welfare in ways that other organizations are not designed to do. If more business leaders were more skilled at explaining these truths, there might be far less of a values void in business that schemes like ESG try to fill.

 

Good points, but is the problem really that those executives lack the skills to make the case that needs to be made?

 

Gregg:

 

In the end, however, intellectual opponents of ESG—whatever their politics or training—can only do so much. It is awfully hard to defend the liberty of business if commercial enterprises play the appeasement game or avert their eyes from the wider agenda with which some ESG proposals are associated.

 

In other words, these business leaders (or some of them anyway) have the skills needed to push back, but they find it easier to “play the appeasement game” or to “avert their eyes” from what ESG is really about.

 

But many of the CEOs going along with ESG and its equally repulsive symbiont, stakeholder capitalism, are doing so for the power and the profits that flow from using their shareholders’ capital to buy them a seat at the corporatist table.

 

Gregg:

 

Milton Friedman regularly observed that business leaders were often the weakest defenders of a form of human activity to which many of them devoted their careers. Their well-intentioned, naïve, or calculated endorsement of schemes rather similar to today’s ESG proposals, he commented, would open the door to government bureaucrats undermining the very freedoms on which successful business depends.

 

When it comes to today’s business leaders’ endorsement of ESG and stakeholder capitalism, some may indeed be well-intentioned, naïve, or just weak, but many know exactly what they are doing, and that is bad news for free markets, prosperity, and democracy.