Capitalist Punishment

1. ESG: Stakeholder Capitalism's Trojan Horse

That’s what ESG ultimately amounts to: the latest and greatest way to disguise stakeholder capitalism as shareholder centric.

ESG's True Nature. ESG (Environmental, Social, and Governance) is not a neutral framework for ethical investing but a strategic tool to advance stakeholder capitalism. It masks a shift from prioritizing shareholder returns to serving broader societal goals, often at the expense of financial performance.

Historical Context. ESG evolved from Corporate Social Responsibility (CSR) and Socially Responsible Investing (SRI), but it goes further by seeking to reshape society rather than just avoid harm. It's a vehicle for progressive policies, often bypassing democratic checks and balances.

The WEF's Role. The World Economic Forum (WEF) is a key driver of ESG, promoting it as a way for corporations to address societal problems. This approach blurs the lines between capitalism and politics, giving unelected elites significant influence.

2. Fiduciary Duty: The Sacred Trust Betrayed

The fundamental principle of trust law is the sole interest rule, which states that trustees must “administer the trust solely in the interest of the beneficiaries.”

The Sole Interest Rule. Trustees, including pension fund managers and asset managers, have a legal obligation to act solely in the best financial interests of their beneficiaries. This duty is considered "sacred" and prohibits them from pursuing social or political agendas with other people's money.

ESG Violates Fiduciary Duty. ESG investing, by its very nature, prioritizes non-financial objectives, such as climate change or social justice, over maximizing returns. This constitutes a breach of fiduciary duty, especially when pension funds are involved.

Greensmuggling. The real problem isn't just ESG funds, but the practice of "greensmuggling," where non-ESG funds are used to push ESG policies through proxy voting and shareholder engagement. This means that even if you don't invest in an ESG fund, your money may still be used to advance ESG goals.

3. ESG's False Promise: No Financial Upside

The debate between stakeholder and shareholder capitalism cannot be resolved by saying that what’s best for all stakeholders in the long run is necessarily also best for shareholders.

The "Long-Term Value" Myth. ESG proponents often claim that ESG investing leads to superior long-term financial performance. However, this claim lacks empirical support and is often based on the assumption that ESG will become more popular, creating a self-fulfilling prophecy.

Climate Risk as Investment Risk? The argument that "climate risk is investment risk" is often used to justify ESG, but it's not based on scientific evidence. Instead, it's a way to justify ESG investing by claiming that it's necessary to mitigate climate change, even if it means sacrificing returns.

The Cost of Virtue. ESG investing often involves divesting from certain industries, such as fossil fuels, which can lead to underperformance. This is because when one investor divests for non-economic reasons, another investor can profit by investing in those same assets.

4. Passive Investing: The Unintended Power Grab

You may think you own shares of many companies through your passive investments, but you don’t have any of these rights.

The Rise of Index Funds. Jack Bogle's creation of index funds revolutionized investing by offering low-cost, diversified options. However, this has led to a concentration of power in the hands of a few large asset managers.

Separation of Ownership from Ownership. Passive investing has separated the economic benefits of ownership from the actual control of companies. Investors may own shares in a fund, but they don't have the same rights as direct shareholders.

The Big Three's Power. BlackRock, Vanguard, and State Street, the "Big Three," now control a significant portion of the stock market. They use their voting power to push ESG policies, often without the consent of the actual owners of the capital.

5. Conflicts of Interest: ESG's Self-Serving Ecosystem

No manager can serve two masters.

Multiple Masters. Asset managers often claim to serve both their clients and society, but this creates inherent conflicts of interest. When forced to choose, they often prioritize their own interests or the interests of their preferred causes.

ESG's Profiteers. A growing ecosystem of ESG rating agencies, consultants, and advisors has emerged, all profiting from the ESG movement. These actors often have conflicts of interest, as they are incentivized to promote ESG regardless of its actual impact.

ESG for Thee, but Not for Me. Asset managers often impose ESG standards on US companies while remaining silent about ESG in other countries, such as China. This demonstrates that ESG is often used as a tool to advance political agendas rather than a genuine commitment to social responsibility.

6. Antitrust Violations: ESG's Cartel-Like Behavior

If the CEOs of the largest US oil companies were to get together in a closed-door conference room and decide to slash oil production, thereby causing prices to rise at the pump, they’d go to jail for price-fixing.

Concerted Action. The Big Three asset managers often act in concert to push ESG policies, effectively forming a cartel. They coordinate their actions through organizations like the Net Zero Asset Managers initiative and Climate Action 100+.

Group Boycotts. Major banks, often owned by the Big Three, are denying financing to fossil fuel companies, creating a group boycott that violates antitrust laws. This coordinated action reduces competition and drives up energy prices.

Horizontal Shareholding. The Big Three's ownership of competing companies in the same industry reduces their incentive to compete. This horizontal shareholding violates antitrust laws and leads to higher prices and reduced innovation.

7. Government Overreach: ESG's Unconstitutional Mandate

To compel a man to furnish contributions of money for the propagation of opinions which he disbelieves and abhors, is sinful and tyrannical.

Compelled Speech. Government entities, such as pension funds, are using public workers' money to promote ESG agendas, violating the First Amendment's protection against compelled speech. This forces individuals to subsidize views they may disagree with.

Compelled Association. Public employees are often forced to join pension funds that promote ESG, violating their First Amendment right to be free from compelled association. This forces them to be members of organizations that promote political views they may not share.

Executive Overreach. The Biden administration has used executive orders and agency directives to push ESG policies, bypassing the legislative process. This overreach undermines the separation of powers and the democratic process.

8. ESG's Negative Externalities: A World Less Free

The alphabet soup of neologisms the WEF serves up is all stakeholder capitalism in the end.

Erosion of Trust. By forcing ESG on every institution, elites are eroding public trust in those institutions. When people see that their money, health, education, and even their military are being used to advance political agendas, they lose faith in the system.

Energy Crisis. ESG policies have contributed to the current energy crisis by strangling fossil fuel production without providing reliable alternatives. This has led to higher prices, energy shortages, and increased reliance on authoritarian regimes.

The Great Uprising. The Great Reset, with its emphasis on stakeholder capitalism and ESG, is being met by a Great Uprising of citizens who reject the dissolution of boundaries and the imposition of elite values. This backlash is a sign that people are not willing to be passive recipients of top-down social engineering.

9. Solutions: Transparency, Competition, and Choice

You live in a cage made of your own money. But you can also fashion your money into the key.

Investor Self-Education. Investors must become more informed about how their money is being used. They should ask their financial advisors tough questions and demand transparency about ESG practices.

Litigation. Private and public attorneys general should bring lawsuits against asset managers and pension funds that violate fiduciary duty, antitrust laws, and the First Amendment. These lawsuits can help to hold bad actors accountable and restore trust in the system.

Market Alternatives. New asset managers should offer alternatives to ESG funds, providing investors with options that prioritize financial returns over political agendas. These alternatives should include both values-based and value-maximizing strategies.

Last updated: January 14, 2025