In the United States ESG Economics Don’t Add Up

In the United States ESG Economics Don’t Add Up
(Deemerwha studio/Shutterstock)
Chadwick Hagan
In America, any and all discussion around the environment has turned into political fodder, and one of the latest maneuvers by unelected elites is an attempt to roll out an uncompromised ESG investment monitoring policy.

What Is ESG?

ESG investing centers around investing in companies that score high in the following tenants: the environment; social responsibility; and corporate governance. For a proper explanation of what ESG is, let's take a look at the definition from MSCI, the index giant. MSCI has a widely accepted ESG rating system. For clarification: E is for environment, S is for social and G is for governance. The guidelines are as follows:

“Under the environmental dimension, key issues include: contribution to climate change a company’s utilization of 'natural capital' (such as biodiversity and raw materials sourcing) pollution and waste management use of green technologies and renewable energy;

“Under social: health, safety, and human capital development product and consumer safety community relations social opportunities;

“Under governance: corporate governance fairness and accountability transparency and ethics.”

Companies are rated based on their participation in the aforementioned categories. The higher the rating the more compliant a company is. Companies that score lower on ESG ratings and indexes might have less access to financing, or perhaps lending rates are higher.

A good modern-day example of what happens when you run afoul of the ESG hall monitors is the current lack of financing available for U.S. fossil fuels companies. However, Apple scores very high largely from Apple’s embracing of California taxes and social justice, never mind the fact that the company creates countless plastic waste, is a large remitter of emissions, and has workforce-related issues.

Why ESG Won’t Work in America

In places like Europe ESG has worked quite well, but Europe has a smaller land mass than the United States and a larger population (740M+). Europe needs to be resourceful. In America, we also need to be more resourceful, but this will not be accomplished by a government mandate.

In the United States ESG economics simply do not add up. America doesn’t even have a comprehensive carbon credit system yet, how irrational to think ESG monitoring could be rolled out with any success at all.

On Aug. 30, 2022, Allison Schrager from City Journal wrote about the ESG bubble bursting, stating: “For a while, ESG looked like a good bet, and values seemed cheap. In a down market, though, ESG’s true cost is starting to reveal itself—and in a more volatile, energy-scarce market, it will only get more expensive. Politics aside, few people or fund managers will tolerate funds that underperform, and this may be the real reason ESG funds have peaked.”

Allison continued: “ESG funds claim to invest in companies that meet environmental, social, and governance goals. This means that they invest only in companies that do good things for the environment—like using clean energy or avoiding pollution—and that employ fair labor practices, pay their workers well, and are committed to diversity not only on their staff but also on their corporate boards.”

It might be the heavy-handed uncompromised approach; or perhaps the anti-business agenda, but add to that 50 different states with different governments, and a vasty inefficient patchwork of Federal institutions (the EPA, the SEC, etc.) and any attempt to develop and enforce a blanket ESG policy in American seems endlessly impossible, if not completely unconstitutional.

To make matters worse, ESG has become a partisan issue in the culture wars. Look no further than John Kerry, the U.S. Special Presidential Envoy for Climate. Kerry is a difficult enigma; despite his public devotion to the environment, he is tremendously polarizing from his long life as a career politician and his dedication to the Davos lifestyle. You think the average American trusts that guy?

What about the recent Inflation Reduction Act (IRA)? The IRA, which was anything but an attempt to reduce inflation, has nearly $370 billion in climate and clean energy provisions. This will only further isolate the public.

Additionally, if ESG has any future in America, there is a high likelihood that it will emerge from private market leadership. Take multi-billionaire heir Lukas Walton, for instance. He is the grandson of Walmart founder Sam Walton. His investment business recently announced that 90 percent of its endowment has been moved into "mission-related" investments, largely focused around sustainability and equity.

At the very best any form of ESG finance in the United States must be a unified and compromised effort, bridging right, left, polluters, and green together. It cannot be dictated by ultraliberals and the religious woke, who are out of touch with business and finance, out of touch with the environment, and out of touch with the common good.

Apart from economic fundamentals, ESG is also dead from the anti-American sentiment that surrounds it. Combating climate change should not be a stepping stone into the ideology of the woke mob. ESG is teetering on full-on neo-Marxist and French postmodern thinking ideologies; woke totalitarianism has no place in America, especially in our financial markets.

In all reality, the ESG bubble has burst from a self-inflicted wound. ESG was killed by America’s own issues; from systematic corruption ingrained in American business and finance and from ultraliberal totalitarianism. The American version of ESG has become a social justice bureaucracy.

Let us not forget, in the words of Helen Pluckrose, “our current crisis is not one of Left versus Right but of consistency, reason, humility and universal liberalism versus inconsistency, irrationalism, zealous certainty and tribal authoritarianism.”

Next time conservatives are blamed for bad environmental policy, counter attack by blaming the disjointed and tribal American social justice brigade for turning the environment into a partisan issue.

Chad is a financier, author, and columnist. He has managed businesses and investments in global markets for over two decades. His recent book, "Global Family Office Investing,” was published by Palgrave McMillan in 2021, and Chad’s macroeconomic blog,, was archived by the Library of Congress in 2019.