There is no doubt that so-called “woke-ism” is problematic,
sometimes deeply problematic. In fact, in some spheres it has been problematic
for a long time. Boycotting movements, political correctness campaigns, and
cancel culture are not new either. They are also not exclusive to the political
left, though in recent times they have aligned that way more. Also, in recent
times they have been pointed out more and called out more.
Cognitive
psychologist Stephen Pinker, in his 2002 book, The Blank Slate: The Modern
Denial of Human Nature, noted that it had become taboo in academic circles
to attribute genetic or biological influences to differences in natural
abilities or differences in skill development. He noted the prevalence of
‘postmodernist Marxist views,’ particularly among professors in the social
sciences and humanities at universities.[i]
When the late biologist Edward O. Wilson published a book called Sociobiology:
The New Synthesis in 1975 that did note biological influences, he was
ostracized, mainly by sociologists who held a prevailing view that “nurture”
was a much stronger influence than “nature” on evolutionary success. Wilson was
taken aback by the response to his book at the time.[ii]
I have read several of Wilson’s more recent books and found them to be
fascinating and thoroughly scientific. In any case, Pinker argued that it had
become taboo to attribute nature as a cause, since nurture, meaning social and
cultural influences, was the prevailing paradigm among social scientists at the
time. The influence of Marxism on these views suggested that all people were
born with the same innate abilities, the same “blank slate” and that the only
differences between them had to do with how their ethnic, racial, and cultural
groups were treated by the society-at-large within which they lived – or which
“class” they were in. Fortunately, this view is less prevalent than it was.
Certainly, both nature and nurture are influences, but to say nature has no
influence is not logical, considering known biological differences in things
like disease susceptibility and certain athletic abilities.
The
Environmental, Social, and Governance (ESG) movement, mainly happening in the business
sector, is a kind of “nudging” by investors that seeks to influence companies
into being more attuned to their effects on society as a whole, including the
environment and how the company is governed. The goal of ESG is fairness and attention
to negative business externalities like environmental impact, to which a
company might be exposed. In 2018, Larry Fink, CEO of the world’s largest
investment firm BlackRock, announced in his annual letter that all future
investments will be screened for usefulness or benefit to society. On the
surface, that seems sensible and doable. However, there is much disagreement on
what is of net benefit to society and what is not. Disagreement on where to put
the line between net benefit and net detriment is at the core of the problem.
Fink’s letter seemed to kick off what would become the ESG movement.
Incidentally, BlackRock still invests in things like coal projects and is not
considered to have screened out too many investments. There are certainly so-called
socially responsible investment groups that do have much stricter criteria for
what they invest in, and they certainly have a right to do just that. One
reason that ESG has taken off and become more mainstream is simply that more
people and business leaders believe that it should. Most large companies,
including oil and gas companies and utilities have essentially joined the
movement, adhering to the protocols and frameworks that have been worked out
and are becoming standardized. Some may prefer not to do so but have accepted
that it is a part of doing business, of achieving the ‘social license to
operate.’
Clearly,
capitalism has been the most successful system ever devised to create wealth.
Though often that wealth was just for some, as time goes on that wealth is for
more and more. The poorest of the poor today are wealthier than the wealthiest
of the past. Capitalism has succeeded in lifting people out of poverty through
voluntary exchange while other economic systems like communism can only do it
in a limited way by coercion.
The arguments
for and against the ESG movement can be characterized basically as stakeholder
capitalism vs. shareholder capitalism. Shareholder capitalism was enshrined
in the 1970’s, exemplified by economist Milton Friedman’s shareholder
primacy, where enhancing profits for shareholders of a corporation is
deemed the sole responsibility of the corporation. Friedman was a smart guy
with many good ideas, but it looks like shareholder primacy is doomed to fade
away. Stakeholder capitalism sees a corporation’s duty not just to shareholders
but to other stakeholders including investors, suppliers, customers,
contractors, employees, industry partners, the local community, the
environment, and even competitors. As shareholder capitalism continues to morph
into stakeholder capitalism the profit motive is joined by a utilitarian
motive, as exemplified by Fink in his original 2018 letter.
Whole Foods
founder and former CEO John Mackey and Harvard Business School’s Raj Sisodia
wrote a book in 2014 called Conscious Capitalism: Liberating the Heroic
Spirit of Business. They argue that a business model that includes all
stakeholders as mentioned above, is more realistic, and just as profitable or
potentially more profitable. All of these should be integrated into the
business model and linked by many shared goals. Getting people out of poverty
was basically a side-effect of past capitalism but with conscious capitalism it
can be a primary goal as well. Mackey and Sisodia note that:
“… voluntary
exchange for mutual benefit has led to unprecedented prosperity for humanity” and that “free enterprise, when
combined with property rights, innovation, the rule of law, and constitutionally
limited democratic government, results in societies that maximize societal
prosperity and establish conditions that promote human happiness and well-being
…”
Short-term
focus is the method of “flippers,” speculators, system gamers, and those with
“exit strategies.” ‘Build the company and sell’ has been a model that focuses
on the success of company owners, executives, and investors, sometimes at the
expense of non-executive employees, contractors, and other stakeholders. Mackey
and Sisodia noted that the average shareholder time period dropped from 12
years in the 1940’s to less than a year in the mid-2010’s. Pressure to show
quarterly gains is one reason so some have argued that such financial reporting
should be stretched out to a half-year model. Offering incentives to executives
for short-term gains as is common, will certainly lead them to focus on
short-term gains, often at the expense of long-term gains.[iii]
Former
Medtronic CEO and Harvard Business School professor Bill George says
stakeholder capitalism is here to stay and that seems to be the case. All major
businesses are being urged to address their environmental, climate, labor, and
social impacts. ESG is a ubiquitous buzzword in the energy sector. Providing clear
and demonstrable plans to address these concerns and externalities is becoming
mainstream. He notes that shareholder primacy is being dropped as the main
concern of major companies. He notes that the Covid pandemic has reminded us
about the essential workers whose concerns must be better addressed. The
pandemic has also highlighted remote work with its advantages and
disadvantages, but especially the advantages. It will also likely result in
more spending toward keeping supply chains more responsive and less vulnerable
to disruptions. He also says it highlights the importance of our local
communities. He says better long-term strategies toward stakeholder capitalism
will help companies to improve their “bottom line” as well.[iv]
The late
corporate law scholar Lynn Stout was an advocate of prosocial behavior,
meaning behavior that benefits others, or unselfish behavior. She argues that
the notions that shareholders own a corporation, and that maximizing
shareholder value is the sole or main focus of a corporation, are erroneous.
She notes that before the 1970’s and 80’s there was a corporate style known as
managerialism that promoted other stakeholders and demoted shareholders. She
argues that corporate law and precedents have upheld that shareholder primacy
is not enshrined in law in any way but is merely a style of running
corporations. She argues that it is really an ideology. She does acknowledge
that some SEC decisions and parts of the tax code have supported maximizing
shareholder value. She points out data that strongly suggests that over-focus
on short-term investing by shareholders has weakened the profits of most
corporations and their staying power in the market. It has also weakened the
profits of long-term investors, including those of us investing in retirement,
to the benefit of short-term investors. Practices like tying executive pay to
shareholder value encourages and rewards a focus on short-term share price. If
anyone is interested the video of her explaining these issues referenced and linked
here is quite interesting.[v]
Is it fair to
equate ESG with woke capitalism? I don’t think it is. Many companies in the
energy sector, in the oil and gas sector, which have a traditionally
conservative orientation, have embraced and pursued ESG and emissions reduction
and few seem to be regretting these moves.
Some states
have sought to curb ESG nudging in their state. They are “implementing or
negotiating on anti-ESG legislation that would ban ESG ratings and other
transparency measures for climate and social matters.” Anti-ESG investors
point to a lack of consistency in ESG ratings, particularly for climate and
social-related transparency. Florida Governor Ron DeSantis calls it
ideological. The Market Realist reports that “On June 10, West Virginia
implemented Senate Bill 262, which allows the treasurer to build a blacklist
for businesses that fail to do business with energy companies for ESG reasons.
This blacklist will keep companies out of the state banking contracts system,
among other punishments.” Bills like this are clear examples of ‘anti-woke
capitalism” which simply shifts the power to ban to the states from businesses
which are shunning businesses that do not meet their ESG criteria at the behest
of their investors. I do not believe this anti-wokeness is a fair solution to
wokeness, or what they deem as wokeness. If the investors want to shun those
companies, they should be able to so. It should be their right. For a
government to make a reversal, blacklisting companies that have ESG
requirements, and enshrining that into law, is not equivalent to investors deciding
not to invest in companies that do not meet their ESG criteria. Such
choice-based nudging is not illegal so why should laws be passed against it in
the form of legally enforced blacklisting? It is the same thing in reverse, but
actually worse since it is enshrined in law. They also reported that “In
2021, Texas pushed into law an anti-ESG measure that made it illegal for
investment firms to “boycott” fossil fuels.” This too is bad business. If a
group of investors agrees that they want to boycott investing in fossil fuels,
why should they be prevented from doing so? Forcing investors to invest in
fossil fuels should not be the correct answer to the problem. There are plenty
of investors that will invest in fossil fuels. The Market Realist also wrote:
“The common thread is that GOP lawmakers see novel ESG
rating factors as an attempt to push a politically left agenda they disapprove
of. The irony here is that ESG funds are notoriously fueled by a right-leaning
agenda.”
“A Goods Unite Us study showed that the Parnassus Core
Equity Fund (PRBLX), which is “driven by a rigorous, firmwide approach to ESG
investing” according to Morningstar, is actually made up of a majority of
GOP-loyal companies. Of the money that the fund’s 40 companies donated to
political parties, 52 percent of that money went to Republicans.”[vi]
Florida
Governor Ron DeSantis seems to be on a crusade against ESG, attempting to purge
it from all state investment systems, by making new laws. DeSantis has singled
out Fink and BlackRock, but it was found that very few of BlackRock’s
investments in the state involved ESG. BlackRock and other investment firms
have agreed to abandon ESG metrics when managing the state’s money. DeSantis’s
press secretary noted that their legal push was in the interest of “protecting
consumers by preventing entities from putting a ‘woke’, arbitrary financial
metric and ideological agenda above fiduciary interests.”[vii]
Meanwhile Fink
himself has noted that attacks against ESG investing have been getting ugly, personal,
and creating huge polarization. In Fink’s words: “Let’s be clear, the
narrative is ugly, the narrative is creating this huge polarization. If you
really read the CEO letters that I’ve written in the past I talk about a
transition” to new forms of energy or addressing fresh demand from younger
investors who care about social issues.”
BlackRock noted
in 2022 “that by 2030, it anticipates that at least 75% of its corporate and
sovereign assets managed on behalf of clients will be invested in stock and
bond issuers with science-based emissions targets. That would be up from 25%
currently.”
Pragmatic
environmentalist Michael Shellenberger has recently been focusing on anti-woke narratives,
including the so-called ‘shadow bans’ revealed in the Twitter Files that new
CEO Elon Musk released. Shellenberger has also dissed the World Economic Forum
in Davos as an elitist event as well as their focus on ESG. Back in May of
2022, Musk, citing a lack of transparency in ESG accounting, went so far as to
call the ESG label, a scam. Oddly, he said that in response to his company Tesla being deemed not transparent. That is coming from a guy who has made millions or
perhaps many millions from clean energy subsidies and garnered massive support through the years from those trying to reduce their carbon footprint. He has in the past, though
not recently, dissed fossil fuels, at the time probably trying to support his
luxury EV business. Thus, he has benefitted tremendously from the emissions
reduction narrative that he is now dissing as part of a scam.[viii]
While I don’t
think ESG is ‘woke-ism’ as often depicted, there are many instances where such
wokism and cancel culture have gone too far. I will give a few examples. Here
is one from a few months ago about am article in the Guardian: Birkbeck College of the University of London
gave into pressure by the student-led group People & Planet (backed by the
National Union of Students) to cut off recruitment pathways to fossil fuel
companies. The campaign is now active in dozens of U.K. universities. Julius
Cassebaum, a careers consultant at Birkbeck, said: “As the climate crisis
continues, we are proud to help minimise exposure to those industries in any
capacity that we can. We hope that our commitment can be a stepping stone for
other universities to follow suit soon.” I think this goes too far and is
not the first time fossil fuel companies have been singled out for
discrimination based on their emissions.
Under the
influence of radical groups like Greenpeace and Extinction Rebellion tech
company Google in 2020 agreed to refuse to build customized artificial
intelligence and machine language algorithms for the oil & gas industry.
This is discriminatory. Amazon and Microsoft said they will continue to work on
such projects with the oil & gas industry. Ironically, such software
solutions help oil and gas companies to decarbonize by producing resources more
efficiently.
Another
example is the rather shocking December 2020 story of the popular outdoor
recreation company North Face refusing to make jackets for oil and gas company
Innovex Downhole Solutions simply because they were involved in oil and gas.
Apparently, North Face does not want to offer support for the oil and gas
industry in the same way they don’t want to offer support to the porn or
tobacco industries. I think that refusal to buy something is a matter of choice
but refusal to sell is a matter of discrimination. Apparently, North Face told
Innovex that they did not meet their brand standards and also indicated it was
because they were involved in oil and gas. Innovex’s CEO also noted that it was
hypocritical since the company relies on products made from hydrocarbons. This is a concerning unfair trend that no one
should support. When people like Michael Mann promote demonization of fossil
fuel companies this is the kind of side effect that can occur. That said,
cancel culture can also be exploited by those who misinform. The verified
misinformation of the “stop the steal” election fraud promoters is an example.
One might even say that it ironically epitomizes cancel culture as an attempt
to cancel the will of the people that voted.
In considering
ESG, I think it is different. The ESG investors screen their investments so if
you want to invest in certain companies that don’t meet their criteria you
would have to do it with another firm. It is not them refusing to sell to you
but simply not selling a product they have decided not to sell. If North Face didn’t
sell jackets, then they could say we can’t sell you jackets because we don’t
sell jackets. In the same way, if someone wants to buy fossil fuel investments
from an investment firm that does not sell them, they can simply say that is
not a product we sell. It is different to say that we sell such a product but
we simply won’t sell it to you because we don’t like what you do.
Another
concerning recent story involves a Ph.D. geology professor who decided to quit
over concerns that he could not have a minority opinion involving climate
change, that only the catastrophic view would be tolerated. His name is Dr.
Matthew M. Wielicki. What follows is his Twitter thread about the issue:
“over the last decade or so, but especially the last
few years, the obsession with universities and grant-funding institutions…
…on immutable characteristics of faculty and students
and the push for equity in science above all else has dramatically changed the
profession of an academic professor. The rise of illiberalism in the name of
DEI is the antithesis of the principles that universities…
…were founded on. These are no longer places that
embrace the freedom of exchanging ideas and will punish those that go against
the narrative. Although I had worked from an early age to earn a Ph.D. and
become a professor, like my father, I feel the profession…
…is no longer worthy of my efforts. Contributing to
this is the earth science communities silence on the false “climate emergency”
narrative. Members of the community routinely discuss the mental health effects
of climate catastrophism but dare not speak out…
…lest they lose their positions and research funds. I
will continue to objectively review the current state of the science and
provide my expert opinions through social media and a future podcast and book
(hopefully, coming soon). I appreciate all of the support I have…
…received from followers here and members within the
community (who shall remain nameless).”
Of course, he is not the first to claim to be ostracized, fearful of losing research funds, and be subjected to adhering to the climate emergency narrative. Climate scientist Dr. Judith Curry was deemed a climate heretic by Scientific American for not towing the same line as have been others. I believe disagreement in science is healthy and there is a very long history of it. If scientists want to enforce a prevailing consensus or paradigm there should be incontrovertible evidence in support of that particular paradigm without uncertainty. That is clearly not the case with climate change. The uncertainties are many. There should be more debate and more papers of climate skeptics should be published in journals since many have claimed they can’t get published.
This paragraph is an addendum added in mid-March 2023. Two things I read today show that there can also be tragic consequences to anti-woke-ism. One is about a new textbook in the State of Florida that tells the story of Rosa Parks not giving up her seat on the bus but does not mention that she was a black woman, only that she was a woman. Another is a story about a professor at a Christian University, also in the State of Florida, that was fired for teaching about racial justice. When I was in college, I took a class about Martin Luther King and Gandhi that talked quite a bit about racial justice and injustice. We have a holiday honoring MLK. I wonder, would that now be a cause for firing in Florida? While I don't know the details of these two cases, it seems that anti-woke-ism is clearly beginning to go to extremes in some cases just as woke-ism has in some cases.
In conclusion
I would like to say that while woke capitalism can be problematic but so too
can anti-woke capitalism. I do not think for the most part that ESG is woke
capitalism. Wokism and cancel culture can be very problematic when people are
actively discriminated against for supporting things like fossil fuels which
obviously have vast benefits and which nearly all people use every day. It is
ridiculous. However, if you are a company that will not reduce emissions, even
when all the other competitor companies are reducing emissions, then investors
should be able to have a choice not invest in your company. You can always find
other investors. Thus, anti-wokism laws are generally unfair and should not be
supported. It looks like BlackRock acquiesced to DeSantis’s demands but if they
hadn’t and the state of Florida wanted to go with another investment firm that
would abide by their anti-wokism demands then that is what they should do, not
make laws blacklisting companies. Freedom to screen investments is a choice of
a seller that I do not see as equivalent to freedom to emit greenhouse gases,
freedom to ignore diversity in the workplace, or freedom to have corporate
governance that is not in line with new norms. Companies can still have those
freedoms, but they should be able to be essentially blacklisted by those who
sell screened investment products. They can buy elsewhere.
[i]
The Blank Slate: The Modern Denial of Human Nature. Stephen Pinker. Viking
Press. 2022.
[ii]
Sociobiology: The New Synthesis. (1975 book by Edward O. Wilson). Wikipedia. Sociobiology: The New Synthesis - Wikipedia
[iii] Mackey, John and Sisodia Raj, 2014.
Conscious Capitalism: Liberating the Heroic Spirit of Business. Harvard School
Press.
[iv] George, Bill, May 15, 2020. Stakeholder Capitalism is
Here to Stay. https://www.billgeorge.org/articles/stakeholder-capitalism-is-here-to-stay
[v]
Stout, Lynn, posted 2018. The Shareholder Value Myth. Youtube. https://www.bing.com/videos/search?q=The+Shareholder+Value+Myth+youtube&view=detail&mid=6B29975FF36BB2D3C90A6B29975FF36BB2D3C90A&FORM=VIRE
[vi]
States Are Pushing Anti-ESG Bills — There's Plenty at Stake. Rachel Curry. The
Market Realist. August 5, 2022. States Are Pushing Anti-ESG Bills — There's Plenty at Stake
(marketrealist.com)
[vii]
BlackRock Retains Florida’s Billions as DeSantis Wages ESG Fight. Felipe
Marques, Silla Brush and Michael S. Bloomberg, January 2023. BlackRock Retains Florida’s Billions as DeSantis Wages ESG
Fight (msn.com)
[viii]
BlackRock’s Fink says climate and ESG-investing attacks getting ugly, personal.
Rachel Koning Beals. Market Watch. January 17, 2023. BlackRock’s Fink says climate and ESG-investing attacks
getting ugly, personal (msn.com)
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