ESG is about politicians and bureaucrats controlling the use of other people’s money, rather than individuals themselves deciding what to do with their own money
Since Milton Friedman’s famous 1970 New York Times essay, the doctrine of corporate social responsibility (CSR) has undergone significant evolution and rebranding. Today, the more common acronym is not CSR, but ESG, which stands for environmental, social, and governance. Environmental and governance responsibilities are not much of an addition: environmental concerns are a subset of social concerns, and whatever the purpose of a corporation, it will not succeed if poorly governed (and poorly managed).
Where ESG differs from CSR is that it is more expansive; it is meant to be applied not only to corporate behaviour, but also to individual and investor behaviour. Even more expansive than ESG is the doctrine of “stakeholder capitalism,” which holds that the purpose of business is to serve the interests of “society,” since everyone in society is said to have a stake in business activity. Arguably, stakeholder “capitalism” is therefore more socialist than capitalist: if business assets must be used for social purposes, then they essentially belong to society.
Whether it is called ESG or by another name, one constant is that this doctrine has been and continues to be mainly a top-down initiative of certain elites, not the result of widespread bottom-up demand from individual investors, consumers, and workers. Much of the ESG charge is led by governments and elite non-governmental organizations like the World Economic Forum. In the business community, ESG is most popular among politically powerful industry and professional associations. Conversely, most individual investors, as authors of a recent study published in the Financial Analysts Journal concluded, “are motivated by financial considerations, not other factors.”
Thus, ESG is often about politicians and bureaucrats indirectly influencing or even controlling the use of other people’s money through the regulatory state, as opposed to individuals themselves deciding what to do with their own money. As Friedman observed, “it’s always so attractive to be able to do good at somebody else’s expense.” Friedman was talking here about government spending, but the principle is the same. The businessperson pursuing social responsibility, as Friedman wrote in his New York Times essay, “is to be simultaneously legislator, executive and jurist. He is to decide whom to tax by how much and for what purpose, and he is to spend the proceeds.”
Whether in the case of corporations pursuing social objectives or governments administering uneconomic programs, Person A spends Person B’s money to achieve Person A’s social objectives. This arrangement is clearly attractive to those in the position of Person A (notably elites in powerful positions), and unattractive to those in the position of Person B (most individual investors, consumers, and workers).
Adjunct Scholar, Fraser Institute
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