So-called sustainable investing has emerged as one of the hottest new trends on Wall Street and in corporate America, corresponding to the general push by firms to use the leverage of financial instruments to advocate social responsibility. Environmental, social, and governance (ESG) scores have become the primary means by which these objectives have been implemented throughout the global economy.
ESG scores represent a substantial and immediate danger to the competitive marketplace and individual liberties at every level of society. HB 2664 is strongly positioned to mitigate their influence within Kansas, and to protect the freedom of small businesses and individuals.
The bill’s express purpose is to prohibit banks, trust companies, credit unions, and other business entities from discriminating against individuals, businesses, or other customers based on subjective and arbitrary standards. Specifically, the bill protects: social media posts; participation or membership in clubs, associations, and unions; political affiliation; employer; social credit score; ESG criteria; and “other similar values-based or impact criteria.” Violations of these freedoms would incur civil penalties of $50,000 and $250,000 for first and second violations.
These protections are vital when one examines the details, problem areas, and insidious implications inherent to the ESG system.
The ESG movement is the chief mechanism of the overarching impetus for a “great reset” of capitalism from a “shareholder” to a “stakeholder” model. Rather than working solely to increase the profits of shareholders, as Milton Friedman famously espoused more than 50 years ago, this new economic ideology authorizes corporate executives and directors to work toward social objectives deemed desirable by stakeholders. These corporate managers are one of the groups typically considered to be a stakeholder, and as such, are often working in their own self-interest.
The principal agents behind this shift include corporate governors, political elites, central bank directors, international organization representatives, and other power global leaders, with Klaus Schwab and Larry Fink operating as the standard-bearers. They have been immensely successful, leveraging their combined influence and wealth to pressure compliance. Ninety-eight percent of U.S. companies now disclose ESG scores, and more than 15,000 companies worldwide have signed onto the United Nations Global Compact—an initiative to use ESG for tracking the United Nation’s Sustainable Development Goals (SDGs).
The implications of the system should be cause for significant concern. ESG scores are essentially a social credit framework for sustainability reporting. They measure both financial and non-financial aspects of a company’s overall risk profile. Companies with favorable credit ratings are therefore attractive targets for investment, whereas companies with unfavorable credit ratings are “screened out.” Their utilization alters how businesses are evaluated, grading them on the basis of their commitment to social justice and environmental causes, rather than traditional, objective financial metrics.
There is no uniform methodology by which companies are evaluated. Instead, there are multiple overlapping systems, sponsored by governments, international organizations, and financial institutions alike. Additionally, there are numerous ratings agencies such as Moody’s and S&P, each of which applies their own unique methodology to assigning scores. Studies have even shown that a rating agency’s subjective viewpoint alters their assessment.
There are substantial problems with the metrics themselves. Though they vary somewhat, each system attempts to aggregate quantitative and qualitative metrics, weighted differently according to the preferences of stakeholders, into one subjectively determined score. For example, the International Business Council (IBC) amalgamates 55 metrics, which range from “Total R&D Expenses” to “Purpose-Led Management” to “Percentage of Employees per Employee Category, by Age Group, Gender, and Other Indicators of Diversity.”
Ultimately, the main threat that ESG systems pose is the concentration of wealth and power within large financial institutions and investment companies, which can use ESG to shape society according to their interests.
In 2020, investment into sustainable funds surpassed $50 billion, 10 times that of 2018. The novelty associated with ESG has allowed financial institutions to justify higher portfolio management fees, while reaping the rewards. The system also allows banks and investment firms to drive large flows of capital to wherever they choose, enriching themselves in the process, while diverting capital from companies that do not play ball.
Blackrock—the world’s largest private asset manager—recently hit $10 trillion in assets under management, powered in large part by ETFs. Its iShares Global Clean Energy ETF is one of the largest ESG funds in the world. Blackrock is run by Larry Fink, one of the chief architects of ESG and possibly the most powerful person on Wall Street. Fink’s 2022 “Letter to CEOs” is riven with references to altering society via corporate activity, with a specific focus on fighting climate change. At one point he threatens, “Every company and every industry will be transformed by the transition to a net zero world. The question is, will you lead, or will you be led?”
Though the repercussions upon a company’s ability to operate in a free marketplace are worrisome, it is the precedent being set for violations of individual liberty that should be cause for greater concern for private citizens. The power ESG affords its creators could be wielded to coerce social media companies into censoring free speech, influence local legislation by withholding vital investments in critical infrastructure contingent upon the adoption of ESG standards, and/or alter consumer behavior surrounding choice of food, car, or clothing, among other items.
In fact, these restrictions are already occurring. Fink’s aforementioned commitment to net-zero is part of an overall push by a conglomerate of more than 450 financial firms from 45 countries—the Glasgow Alliance for Net Zero—to halve CO2 emissions by 2030 and mostly eliminate emissions by 2050. Can you think of a way this would be possible without coercing individuals?
Moreover, just as corporate credit ratings have already begun incorporating ESG scores, there is nothing that would prevent them from applying the same scores to small businesses and individuals. A high-level employee of Fitch Ratings predicted this will occur as soon as 2022 in terms of analyzing CO2 emissions for small business credit ratings and energy consumption for mortgage evaluations. He concludes, “Over the longer term, we expect that ESG and climate risk evaluations will become an integral element of credit risk and affordability assessments.”
More generally, banks have recently been restricting access to their services based on normative values. In 2018, multiple banks – including Citibank – restricted credit card and banking services to gun retailers and ammunition vendors. In 2019, JP Morgan Chase closed accounts belonging to many right-wing political commentators and activists, with no clear reason given. In 2021, Deutsche Bank announced it would no longer service President Donald Trump’s accounts, purely on an ideological basis.
Each of these could be inserted into ESG frameworks at any given moment, according to the objectives of the system’s controllers. HB 2664 represents a strong step towards preventing similar restrictions in Kansas.
Only state-level legislation such as HB 2664 can safeguard our individual freedoms, by establishing sufficient protection of those freedoms under the law.
The following documents provide additional information on ESG and related topics.
Understanding Environmental, Social, and Governance (ESG) Metrics: A Basic Primer
Understanding Environmental, Social, and Governance (ESG) Scores, and Why Lawmakers Should Oppose Them
Are Financial Institutions Using ESG Social Credit Scores to Coerce Individuals, Small Businesses?
Standard and Poor Ratings Credit Ratings Criteria: Environmental Social, and Governance Principles in Credit Ratings
Example Metrics from International Business Council ESG System
Bank of America Environmental and Social Risk Policy Framework
BlackRock ESG Integration Statement
Lloyd’s of London ESG Strategy and Responsible Business Approach
Wells Fargo Advancing Environmental Sustainability
Business Round Table Redefines the Purpose of a Corporation
President Biden Executive Order 14008 on Whole of Government Approach to Tackle Climate Change
President Biden Executive Order 14057 Executive Order on Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability
U.S. Department of Labor Proposes New Investment Duties Rule to Allow for ESG Investing
Recent Legislative Testimony
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