Summary
- Corporate ESG investments often lack traditional expected-value and return-on-investment scrutiny.
- Wasteful ESG spending can harm affordability, national security, free enterprise, and social cohesion.
- Heritage’s American Investor Initiative seeks greater ESG ROI transparency and corporate accountability.
Environmental, social, and governance factors, including diversity, equity, and inclusion initiatives, continue to play a material role in corporate governance, reportedly driving trillions of dollars in investments.
Shareholders and other corporate stakeholders likely assume these investments—such as net-zero commitments and employee resource groups that divide employees on the basis of race and sex—are subject to traditional screens like expected value and return-on-investment calculations.
In fact, fiduciary duties arguably require investments to be vetted via expected value and ROI unless a good reason exists not to. Yet corporate ESG and sustainability reports rarely, if ever, even mention expected value or return on investment, leading to serious questions about how shareholders’ money is being spent on what are often ideologically driven agendas.
While it may come as a surprise, when corporations waste money on ESG, the subsequent loss of shareholder value implicates (1) affordability, (2) the growing national security threat of China, (3) the rise of socialism, and even (4) the Islamification of the United States.
First, if corporations “go woke, go broke” by wasting money on ESG investments, necessities become harder to afford for retirees relying on the stock performance of those companies. Likewise, when ESG investments take the form of DEI initiatives that discriminate on the basis of race and sex in the name of racist “equity,” the individuals left unemployed or underemployed because of such initiatives face similar affordability challenges.
Second, ESG investments that undermine the energy independence of the United States via utopian “green” initiatives are notorious for strengthening China. For example, as I put it in September, “while net-zero commitments undermine U.S. energy independence, prosperity, and national security, China is not similarly limited,” which means U.S. corporate net-zero commitments may give China a leg up in its competition with the U.S. Relatedly, corporate DEI initiatives that divide employees on the basis of race and sex can undermine social cohesion in the U.S. in ways that China can take advantage of.
Third, wasteful spending in the name of ESG may be deemed a form of crony capitalism, but when the consequent costs are mistakenly or purposefully improperly attributed to free market capitalism, the destructive specter of socialism grows.
Finally, when ESG investments promote a nihilistic multiculturalism and a war on Western civilization and Christianity in the name of “inclusion,” the threat of Islamification of the United States similarly grows.
The foregoing are just some of the costs arguably imposed on Americans via corporate ESG investments untethered from the market discipline of traditional expected value calculations or ROI. They help explain why one of the areas of focus for The Heritage Foundation’s American Investor Initiative is ESG ROI. Among other things, the initiative files shareholder proposals requesting ESG ROI transparency and negotiates related improvements in corporate disclosures.
Even a seemingly open-ended statement that a corporation “may” consider expected value and ROI in making ESG investments can materially improve corporate disclosure and market accountability, if for no other reason than what such a statement does not say.
For example, a corporation making such a statement could have said that calculating ESG ROI is impossible or that ESG ROI is irrelevant because all ESG investments are compliance cost centers. In fact, in a recent post on the Harvard Law School Forum on Corporate Governance, my colleague Allen Mendenhall and I noted that “when we have offered to withdraw shareholder proposals if a company would state publicly that its sustainability commitments are legally required, companies have generally declined to do so.”
Incremental disclosure improvements that take such objections to ESG ROI off the table—at least as across-the-board excuses—set the stage for further transparency and accountability.
In the end, improving corporate accountability for ESG ROI benefits corporations, their shareholders, and other stakeholders, as well as free enterprise generally. Accordingly, more work needs to be done to improve corporate ESG ROI disclosures and accountability, and Heritage’s American Investor Initiative will continue to do that work.
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[ H/T The Daily Signal ]
