Because the tools available to today's wannabe tyrants and despots are so much more powerful than those available to their predecessors, think Hitler with today's surveillance, murder, and propaganda technologies, the strongest counterweight is to decentralize and, in the words of Frances Fox Piven, "Throw sand in the gears of everything."
Which means pushing back on Larry Fink and his 10-Trillion dollar empire as well as pushing back on the control-freak political hacks that both enable and bow to the power of the uber-corporatists.
From American Affairs Journal, Vol. VI, No. 1:
ESG—environmental, social, and governance—investing has become one of the fastest growing areas of finance in recent years and increasingly influences capital allocation decisions for investors and firms. But what exactly is ESG, and does its actual impact on a broad group of economic “stakeholders” match its advertising? As ESG funds have grown their assets under management in recent years, ESG investment criteria have, if anything, only become more contested.
Indeed, Bloomberg Businessweek recently revealed that the largest for‑profit accreditation company of corporate environmental and social responsibility, MSCI, does not actually measure a corporation’s impact on society or the environment, but rather assesses how companies are reducing regulatory and brand risks for their shareholders.1 New York University finance professor Aswath Damodaran recently lamented that the ESG ecosystem is merely a “gravy train” for consultants, ESG fund managers, and investment marketers, leading to little social benefit for stakeholders outside of the self-serving circle of the ESG industry.2 Former Facebook executive, SPAC promoter, and Social Capital founder Chamath Palihapitiya has made an even bolder statement that ESG funds and evaluation agencies like MSCI are fraudulent products.3 He argues that these groups use the veneer of social and environmental responsibility to reduce regulatory oversight for multinational behemoths while allowing them to apply for negative interest rate loans from central banks. From Palihapitiya’s perspective as a venture investor, these “green washed” and “social washed” funds attract investment away from actual businesses that are addressing social and ecological challenges more fundamentally in their business models.
MSCI and other ratings companies have also been criticized for their lack of transparency, divergent approaches to measurement, and conflicts of interest. While credit rating agencies’ measures of the credit risks of companies are largely comparable, ESG ratings do not show this same convergence.4 Florian Berg of MIT’s Aggregate Confusion Project has shown that often “the firm that is in the top 5% for one [ESG] rating agency belongs in the bottom 20% for the other. This extraordinary discrepancy is making the evaluation of social and environmental impact impossible.”5 Under the current state of affairs, ESG ratings are basically meaningless for comparing investments.
Nevertheless, whether the ESG industry is a gravy train, a fraudulent system of smoke and mirrors, or a mixed bag of confusing options, one thing is clear: the industry is ballooning. By 2025, ESG funds are predicted to grow to $53 trillion.6 One in three dollars invested globally is now invested in ESG products.7 From 1993 to 2017, ESG reporting grew from 12 percent to 75 percent in the hundred largest corporations in forty-nine countries (4,900 companies).8 By some estimates, there are 160 ESG ratings and data products providers worldwide.9 Fueling this growth is increasing demand from investors across all demographics. According to a survey conducted by Natixis Investment Managers of 8,550 individual investors across twenty-four countries in April 2021, 77 percent believe it is their responsibility to keep companies accountable for their impact on society and the planet.10
Yet paradoxically, ESG funds rarely vote in favor of environmentally and socially conscious shareholder resolutions.11 Researchers assessed 593 equity funds with over $265 billion in total net assets that specifically used ESG- and climate-related key words in their marketing. They discovered that 421 of the funds, or 71 percent, have a negative “Portfolio Paris Alignment” score, indicating that the companies within their portfolios are misaligned from global carbon reduction targets.12 Black-Rock’s U.S. Carbon Transition Readiness ETF has holdings in fossil fuel companies and invests in the largest funder of fossil fuel companies, JPMorgan Chase.13 Institutional Investor magazine has highlighted a litany of examples of major brands (Coke, Nestle, etc.) that have been celebrated as ESG stars and yet deplete local water aquifers, generate significant plastic waste, employ child labor in their supply chains, and provide mostly unhealthy beverages to their customers that contribute to obesity, diabetes, and other health problems.14 Other highly rated ESG investments like Nike, HP, and Salesforce have used accounting tricks to avoid paying U.S. taxes.15
What about the innovators in Silicon Valley? Scott Galloway, professor of marketing at New York University’s Stern School of Business, has taken aim at Aspiration, a fintech company valued at $2.3 billion that provides debit cards as well as an ESG-focused investment fund, Redwood (redwx), which has been highlighted in B Corporation’s “Best for the World.”16 Yet like many ESG ratings companies mentioned above, the “AIM” (“Aspiration Impact Measurement”) score it uses to inform customers of positive impact purchases lacks transparency. Even worse, AIM highlights brands based on their climate and diversity slogans regardless of their effect on climate change or other real‑world impacts. Aspiration’s fund, contrary to its marketing slogans, invests in carbon emitting airline and energy companies. In contrast to what the ESG industry may say in their marketing, these funds and companies are not exactly exemplars of high integrity or corporate citizenship.
Misaligned Ends
These revelations undermine the claims of the ESG industry—that their funds will reduce the negative impacts of corporations on the common goods (air, water, livable climate, social trust, etc.) critical for the flourishing of American families and communities. In reality, ESG metrics work from the outside in, assessing the risk from society to the company, not the reverse. While transparency can be effective at changing some corporate behaviors,17 most market-led ESG measurement accounts for activities or processes and not outcomes, often reporting new ESG programs but not reporting the success or failure of these efforts.18 Any scrutiny of existing activities begets other activities that may be great for public relations—and reducing oversight—but which do not fundamentally alter the corporation’s negative impact on American society or our natural environment. As an example, McDonalds recently reported its commitment to achieving net-zero carbon operations by 2050 but still fails to show how it will practically address its current massive impact on global warming.19
Such corporate behavior is predictable given the past and current design of financial institutions and modern corporations. Until these designs are reimagined and replaced, ESG will rarely align with social and environmental impact because investors and corporations will be primarily focused on profit and valuations. We should not expect otherwise....
....MUCH MORE
