ESG Is Not Part of a ‘Free-Market’ Economy. It’s the Result of Corruption, Cronyism, and Big Government
Seven important points to keep in mind when considering ESG metrics and whether prohibitions against them would violate free-market principles.
Environmental, social, and governance (ESG) metrics are part of a controversial social credit scoring system designed to help corporations, banks, and even some governments evaluate businesses and individuals.
Unlike other tools used to measure the performance of a business, ESG systems focus on many non-financial factors, such as a company’s commitment to battling climate change, willingness to engage in social justice activities within the community, the size of a company’s facilities, and a business’s “Percentage of employees per employee category, by age group, gender and other indicators of diversity (e.g. ethnicity)” — among dozens of other factors.
The purpose of ESG is to “transform” society by altering the policies, products, and services offered by banks, Wall Street firms, social media companies, and corporations. As Klaus Schwab, the founder and executive chairman of the World Economic Forum and a leading advocate of ESG, wrote in a 2020 article: The world, using ESG and other “stakeholder capitalism” tools, “must act jointly and swiftly to revamp all aspects of our societies and economies, from education to social contracts and working conditions. Every country, from the United States to China, must participate, and every industry, from oil and gas to tech, must be transformed.”
(To learn more about the basics of ESG and the people promoting it, go here.)
In states throughout the country, lawmakers are now considering restrictions on the use of ESG social credit scores. In particular, many policymakers are concerned about banks and financial institutions using ESG to impose societal changes by discriminating against businesses and families that do not wish to fall in line with the goals of those who craft ESG scoring models.
As I have discussed previously, many financial institutions are already using ESG and other subjective standards to punish or award businesses. Moreover, ample evidence suggests these practices are only going to become more widespread in the coming months and years.
Even more disturbing, there is additionally evidence suggesting that individuals and families will soon be directly affected by ESG metrics, especially those related to the environment. (You can read about that development here.)
Policymakers who oppose ESG systems have received a tremendous amount of pressure from lobbyists, pundits, and activists. Among the primary arguments they make against any limits on ESG is that environmental, social, and governance standards are part of the “free market.” Any attempt to restrict them is an assault on liberty, ESG supporters claim.
This has been a persuasive argument for some conservative and libertarian lawmakers who remain concerned about passing laws that could expand the size and scope of government, but it shouldn’t be. ESG systems are not part of a truly free-market system. In fact, they are designed to undermine free-market economics and reduce consumer choice.
Below are seven important points to keep in mind when considering ESG metrics and whether prohibitions against them would violate free-market principles.
1. The banking and financial industries are not “free markets,” not by any stretch of the imagination. They are already among the most heavily regulated industries in the country. Governments at the state and federal level currently set strict rules about lending, financial services, and other products offered by banks and financial firms.
2. There is nothing “free market” about ESG systems, nor other similarly subjective ratings systems. The ESG model is effectively collusion. It’s closer to the way mafias operate than it is to a market-based economy. Instead of responding to the desires of customers, businesses are forced to listen to the demands of a small group of banks, investors, and international institutions. Under an ESG scheme, big banks, Wall Street firms, and financial institutions work together with activists to decide as a group which markets and businesses they will allow to survive and which ones will be destroyed. And those decisions are not based on free-market considerations. Instead, they are predicated on crony arrangements between themselves and officials from international institutions, central banks, and governments. Proof of this can be found by looking at groups like Principles for Responsible Investment (PRI), a global organization whose members control more than $100 trillion (not a typo). PRI openly discusses how “sustainable investment” policies like ESG, mixed with government subsidies, regulations, and large spending programs focused on environmental issues, will help investors, corporations, and banks get richer in the near future — all while saving the planet, of course. ESG systems exist because of cronyism, not market forces like supply and demand.
3. The only reason ESG systems can flourish is because central banks have flooded financial markets and banks with trillions upon trillions of dollars of printed cash. In fact, about “80% of all U.S. dollars in existence have been printed in just the last two years” (as of January 2022). Further, interest rates have been kept near zero for years, adding more dollars into the U.S. market. Without this extra money floating around, something that would never occur in an authentically “free market” economy, ESG systems could not be used in the way they are now, because earning a profit, not cronyism nor access to easy money, would be the focus for nearly all businesses.
4. By allowing banks, financial institutions, and Wall Street titans to force businesses and individuals to act in a particular way and to only be permitted to buy certain products and services, governments are effectively giving those wealthy institutions the authority to determine how society functions — rather than reserving that power for voters, taxpayers, and their representatives in elected office. The American people and their representatives should be the ones determining market rules, not wealthy public corporations who have received massive amounts of money from taxpayers.
5. Banks, corporations, and investment firms are not private individuals endowed with God-given (or nature-given) rights. They are creations of government. Modern U.S. corporations only exist because government gives them the ability to exist, and they regularly benefit from special arrangements individuals do not typically have access to. Corporations have access to special tax rates, special employment laws (like buying health insurance across state lines), special liability protections, and they often receive huge amounts of government bailouts and lucrative government contracts. None of this would ever occur in a “free market.” Why should businesses that receive so much support from taxpayers be allowed to actively discriminate against many of those same taxpayers?
6. Other kinds of discrimination are already forbidden by state and federal laws, and very few people argue that this is a violation of the “free market.” For example, banks are not allowed to deny loans to businesses on account of the race, gender, religion, or sexual orientation of the business’s management team. Why, then, should we allow these same banks to deny services on the basis of a tweet someone wrote on social media, the candidate a business owner voted for in a previous election, or the type of lawful industry a business operates in? Why are some forms of discrimination by large financial institutions and banks allowed while other types are strictly prohibited? It is our position that banks and financial institutions should make decisions based on financial considerations alone, and that if the citizens of a state believe a certain kind of business practice, societal standard, etc., should not be allowed, then the elected representatives of that state should ban that activity. This is how well-functioning constitutional republics operate.
7. Some opponents of ESG laws have suggested that situations such as a bank denying access to loans to applicants who used to work in the Trump administration, for example, or a bank denying a loan request from a company that lawfully operates in the oil and gas industry, are similar to the much-talked-about example of an individual cake shop owner who refuses to make a wedding cake for a gay couple because of the shop owner’s religious views. These examples are nothing alike, however. For starters, a cake shop owner in such a situation is still required to make a cake for gay couples — just not a wedding cake. Courts have allowed this limited exception to protect the religious rights of the owner of the cake shop (some people’s religious views forbid endorsing gay marriage). Regulations that forbid financial institutions and insurance companies from using ESG to discriminate against individuals and businesses don’t have anything to do with religious rights being violated, nor are any other individual rights being limited. We’re talking about discrimination imposed by heavily regulated, publicly traded, for-profit corporations and banks doing business in the public marketplace.
Further, the Supreme Court has already determined that for-profit corporate businesses do not have the same rights as individual Americans. Glenn Beck and I discussed this idea in our Great Reset book, published in January 2022. As we noted in the book:
There used to be a time when even many elites understood that corporations should not have unlimited power. For example, consider the following quote from the opinion issued in 1946 by the Supreme Court in Marsh v. Alabama, a case in which the Court determined a private corporation could not prohibit a Jehovah’s Witness from distributing religious materials in a company-owned town because the ban was in violation of the First Amendment.
“Ownership does not always mean absolute dominion,” wrote Hugo Black, a justice appointed by one of the twentieth century’s most progressive presidents, Franklin Roosevelt. “The more an owner, for his advantage, opens up his property for use by the public in general, the more do his rights become circumscribed by the statutory and constitutional rights of those who use it. Thus, the owners of privately held bridges, ferries, turnpikes and railroads may not operate them as freely as a farmer does his farm.”[i]
Make no mistake about it, large corporations ought to be given a great deal of authority over their products, services, and property, but it should never be forgotten that corporations are not Divine institutions fully endowed with inalienable rights, but rather the creations of government that exist to offer to the public—everyone in the public—goods and services. There is no reason why they should have the power to silence political or religious speech, and Americans who are demanding corporations be required to promote individual rights as a condition of having access to special legal protections ought not to feel even slightly ashamed for doing so.
[i] See Marsh v. Alabama, 326 U.S. 501 (1946), https://supreme.justia.com/cases/federal/us/326/501.
Justin Haskins is the director of the Socialism Research Center at The Heartland Institute and the co-author of the New York Times bestselling book The Great Reset: Joe Biden and the Rise of Twenty-First Century Fascism. His opinions in this article do not reflect the views of The Heartland Institute.