End of Week Notes
Why the Right hates ESG
It’s all about them wanting to protect the fossil-fuel industry and halt the corporate shift towards stakeholder value.
I don’t know about you, but when I see the likes of Ted Cruz, Marco Rubio, Greg Abbott, Mike Pence, and Elon Musk railing against “ESG”, I know ESG must be doing something right.
In case you missed it, do read Pence’s Wall Street Journal op-ed, but steel yourself for the vicious name-calling, conspiracy theories and gaslighting.
In Pence’s MAGA view of the world, “leftists” have “manufactured” this whole ESG thing, somehow convincing the world’s largest asset managers to go along, “to destroy public companies from within.”
“A sudden abundance of liberal shareholders isn’t what’s driving this new trend of woke capitalism and it certainly isn’t a reflection of consumer demand. Rather, the shift is entirely manufactured by a handful of very large and powerful Wall Street financiers promoting left-wing environmental, social and governance goals (ESG), and ignoring the interests of businesses and their employees.”
Laughable. The truth is that most asset managers only came to the table after they realized the demand from end investors.
Here’s what’s really happening: Most people think large corporations should take action to limit their carbon emissions and position their businesses to thrive in a low-carbon economy. Most people also think large corporations should treat their workers better, and most people think companies should not be run only by white men for the sole benefit of shareholders.
This to me, is really the essence of ESG, however imperfect it may be.
Why are Pence and his fellow extremists so threatened by ESG?
Maybe they have simply discovered another plank for their meta-message, which is that anyone or any societal trend or any new idea taking hold that doesn’t align with their white nationalist worldview is itself the work of extremists bent on destroying America.
The thing about extremist ideologues is that they see everyone who disagrees with them as enemies and their enemies as ideologues, which they use to justify their own extremism.
There is a through line from CRT to ESG. Teaching kids about the legacy of slavery and racism leads to educated workers forcing companies into focusing on diversity, equity, and inclusion. Using initialisms with meanings unknown to most makes it easier to define them as sinister conspiracies.
Then there is the Right’s undying support for the fossil-fuel industry and opposition to doing anything to address climate change. They are so committed to the industry and to climate inaction that they have passed legislation in states like Texas to prohibit asset managers and banks that consider ESG and climate risk from doing business with state entities. These supposed free-marketeers are running a protection racket, trying to force investors to continue investing in the fossil-fuel industry regardless of whether investors believe it to be prudent.
The other reason ESG is so threatening to conservatives has to do with the larger movement of much of corporate America away from the Republican Party. For nearly a half century, corporate America has bankrolled Republican politicians and conservative free-market think tanks and trade groups.
But corporate America is becoming at least somewhat more progressive in its views, not because it is being bamboozled by “the left” or ESG investors, but because of increasing extremism on the Right and its negative impact on issues ranging from climate change to income inequality to racial justice, women’s health, guns, and voting rights. It’s not that CEOs have become leftists or are catering to them, it’s a matter of enlightened self-interest. Political instability, creeping authoritarianism, and weakening of the rule of law are simply not conducive to the orderly conduct of business.
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Aligning corporate campaign contributions with corporate values
Republicans know that their corporate campaign contributions gravy train is under threat. The only meaningful policy enacted by the Trump administration and Republican Congress in 2017–2018 was the giant corporate tax cut, bought and paid for by corporate donors. The expectation was that corporations, duly sated, would stand by silently when it came to the Right’s extremism.
But there is still work to be done by ESG investors. Judd Legum and colleagues reported in his Popular Information newsletter this week that 25 major corporations have donated more than $13.2 million to anti-LGBTQ politicians since the start of 2021. Every one of them were highly rated by the Human Rights Campaign’s 2022 Corporate Equality Index. The takeaway:
“Along with workplace policies, the Corporate Equality Index purports to measure corporations’ ‘public commitment to the LGBTQ community.’ But HRC’s methodology excludes political donations, enabling corporations to craft a pro-LGBTQ image while bankrolling politicians that are undermining LGBTQ rights.”
This is why it’s so important for shareholders to press companies about their political contributions and trade group memberships. Just this week, over the opposition of management, 44% of AT&T shares were voted to rebuke the company for its continued association with politicans and trade associations that conflict with its stated values.
While Republicans hold gun reforms hostage, shareholders make a little progress
At Sturm Ruger’s annual meeting this week, shareholders voted in support of a proposal by asset owner CommonSpirit Health. The resolution is aimed at forcing the company to curb misuse of its firearms and to “take concrete steps to remediate adverse impacts.” CommonSpirit notes that companies “have a responsibility to respect human rights within their operations and throughout their value chains,” adding, “the inherent lethality of firearms exposes all gunmakers to elevated human rights risks. In selling its firearms to civilians, Ruger assumes they will be used safely, and while that is mainly the case, the grave threat for product misuse and resulting harm to society is not accounted for in Ruger’s governance structures or in policies or practices that would mitigate this threat.”
How Jack Welch enriched shareholders but crushed the soul of capitalism
Here is a must-read for you this weekend. A conversation between Anand Giridharadas and David Gelles, author of a new book, The Man Who Broke Capitalism, about Jack Welch and how he ran GE as the epitome of the shareholder primacy view of capitalism.
There are a lot of cynics out there about “stakeholder capitalism” but the old model got us where we are today and the new one, although struggling to be born, is a better way forward.
