Economy 12-01-2024 16:01 56 Views

A Short Guide to ESG: Philosophical Problems

In addition to Economic Problems and Political Problems, philosophical objections to ESG abound but are rarely addressed by its advocates. Besides largely resting on a pretense of knowledge, which Friedrich Hayek called The Fatal Conceit, parts of the ESG agenda are dehumanizing and amount to little more than justifications for theft. Not only will government-mandated ESG compliance create a poorer world, it will also create a world with less achievement, greater conflict, and the trampling of individuals for the sake of the “collective good.” These are serious charges, so let me make my case in brief.

The Pretense of Knowledge

Friedrich Hayek, a foremost critic of socialist economic planning, explained in multiple articles that a major economic problem people face is one of knowledge and coordination: What should be produced, how, when, and by whom? Not only are market dynamics constantly shifting, but there can also be no universal answer in a world of diverse people with varied circumstances and subjective values. Socialists assumed the answers to the economic problem and built their plans on those flawed assumptions. The environmental movement does much the same thing — assuming answers to questions to which no one can know the answer — which creates this pretense of knowledge.

Consider the question of whether climate change constitutes a climate emergency. Not only do we assume that the world is warming at a particular rate and that greenhouse gas emissions contribute to that warming, but climate models also tend to assume that warming trajectory will continue according to estimated ranges, based on projections of global emissions. Then additional projections are made about the impact of a certain amount of warming, including the frequency of “superstorms.” 

Without wading into the details of these models, consider how the longer a chain of reasoning gets, the more precarious its conclusions become — both because the chance of error grows with more links and because the later results can be quite sensitive to even minor changes of fact or assumption at earlier links in the chain of reasoning. Anyone who has studied statistics should understand the dangers of extrapolation.

Although it is easy to dramatize “climate” disasters and attribute severe weather to climate change, such connections cannot be rigorously established. And the history of “catastrophizing” is not on the side of alarmists. This is true when it comes to improvements in standards of living as documented by Steven Pinker. It is also true in the dramatic failures of two doomsday forecasters: Thomas Malthus and Paul Ehrlich

Malthus famously predicted that large parts of every population were destined to be poor and that societies would go through endless cycles of population growth that would outpace food production resulting in famine, plague, poverty, war, and death. His timing was spectacularly bad – publishing this claim right as populations in Europe exploded along with unprecedented improvements in living standards.

Similarly, Paul Ehrlich wrote in the 1960s and 1970s that the world was quickly becoming overpopulated and would face dire shortages of resources and famine before the end of the 20th century. Economist Julian Simon famously wagered with Ehrlich that a basket of resources was more likely to become cheaper, in real terms, due to human ingenuity. 

Simon, who believed human ingenuity to be the ultimate resource, won the bet

Needless to say, the global population is far higher than Ehrlich feared and far more prosperous and well-nourished. Which brings us to the climate alarmists. They have done a remarkable job of building consensus, silencing dissent, and discrediting those who question their projections. They have also created a sense of urgency that cuts debate short and galvanizes large numbers of young people to activism

But will their dire predictions come true? History is not on their side. Ultimately, human ingenuity, not resource scarcity or external constraints, drives living conditions in countries with free markets and limited government.

Dehumanization and Injustice

But let’s turn to the Social dimension of ESG. Advocates of Diversity, Equity, and Inclusion (DEI) want to advance “disadvantaged” or “excluded” minorities, simply because they are “disadvantaged” or “excluded.” Laying aside for the moment the questionable criteria for determining whether a group is disadvantaged or excluded, this approach, while seeming like justice, actually dehumanizes people. 

Rather than addressing wrongs done to individuals, or fixing specific unjust policies, DEI advocates want people to be seen and judged by the groups they are part of — groups, by the way, that often they have not chosen. How can we advocate a system where people are treated differently based upon characteristics over which they have no control, such as their skin color or family history? And characteristics people do have control over, such as gender identity, quickly become a door to advancement and opportunity that has nothing to do with achievement or merit. Nor does it have anything to do with providing value to one’s fellow citizens.

The whole DEI framework has deep connections to cultural Marxism and Critical Race Theory. It is also connected to the idea of deconstructionists like French philosopher Michel Foucault. The world is framed as primarily consisting of power structures between groups — power structures that are zero-sum in nature. People only win at the expense of others. This outlook implies that conflict is inevitable, with justice being on the side of the oppressed. As Hayek observed in 1960, however, if we reward people based upon external assessments of merit (such as being part of disadvantaged groups and intersectionality), people will work hard to meet those assessments rather than being productive and serving others. 

Little More than Theft

Part of the Governance element extends the Social goals of DEI, and amounts to a kind of theft. Pressuring or requiring companies to act in ways at odds with maximizing shareholder value misappropriates what belongs to others. That’s what Klaus Schwab and Larry Fink have been doing — attempting to direct the capital of others, and the wealth of nations, into their favored projects. These resources do not belong to them, yet they want to influence or even control how they are used.

At the end of the day, much of the Environmental, Social, and Governance movement rests on a pretense of knowledge. What’s worse, it puts the interest of the “collective” over the wellbeing of individuals. Viewing the world as merely a set of zero-sum power relationships of oppressed and oppressor breeds resentment and conflict. It also dissolves the unique characteristics, abilities, and merits of individuals in the solvent of group identities. Many Governance changes sought by ESG advocates amount to little more than theft. 

What can be done to address the philosophical problems created by ESG? Greater cultural, political, and legal support for robust private property rights will prevent theft and reduce waste. Commitment to property rights also preserves a sphere of autonomy for individuals and families to live as they see fit. This includes championing the fiduciary responsibilities of corporate boards and executives as well as investment fund managers. 

Market competition, not collectivism, offers the best hope of improving the lives of individuals around the world. Besides respecting individual rights and human dignity, it is a system built around serving one’s fellow man and being held accountable, in relatively impersonal and unbiased ways, for how we manage our property and resources. It is both the most just and the most beneficial way of ordering modern societies.

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