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ESG guidelines seem innocuous enough, so why the backlash?

IbyIMD+ Published 20 June 2022 in Magazine • 7 min read • Audio availableAudio available

Environmental, social and governance measures have become a central battleground over the purpose of a corporation and who gets to exercise control. 

Over the past three decades, socially responsible investing has shifted from the periphery to the very center of the capital markets under the banner of ESG. “Environmental, Social and Governance” describes a set of measures used to evaluate company commitments as well as a philosophy of investing. Trillions of dollars have been invested in ESG mutual funds and ETFs (exchange-traded funds) in recent years. ESG funds often implement a screen such that they only invest in corporations that exceed some threshold on ESG metrics. They may also use ESG criteria in how they vote their shares. 

ESG is big business: according to Bloomberg, “one in four of every professionally invested US dollars is tied to environmental, social and governance criteria.” There are many alternative ESG evaluators and hundreds of competing fund products, and almost all US and European corporations listed on a major stock market are obliged to disclose ESG data. Boards are incorporating ESG incentives into executive compensation packages. Being ESG savvy also turns out to be a valuable job skill for MBAs. 

Yet just as ESG seemed ready to declare victory, it is facing a significant backlash from the political Right. Elon Musk tweets, “I am increasingly convinced that corporate ESG is the Devil Incarnate.” Peter Thiel, the billionaire entrepreneur and co-founder of PayPal, states: “ESG is just a hate factory. It’s a factory for naming enemies, and we should not be allowing them to do that. When you think ESG, you should be thinking Chinese Communist Party.” And Republican state…

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