ESG was, from its very beginnings as an idea promoted by the U.N., designed to advance a progressive agenda.

One of the frequent complaints thrown at those, typically on the right, who have objected to the rise of ESG has been that they are “politicizing” the investment process. It was — and remains — an absurd argument. But ESG’s activists, propagandists and rent-seekers have been found out, and they have had to try something.

To go over some well-trodden ground, ESG is an investment “discipline” which (partly) involves measuring actual or potential companies by how highly they measure up against various conveniently vague environmental (“E”), social (“S”), and governance (“G”) criteria. DEI (diversity, equity, and inclusion), an offshoot of ESG, can fall within “social” and “governance.”

Attempts were made (most notoriously the claim that adopting ESG would mean “doing well by doing good”) to argue that ESG was a reliable route to outperformance (it wasn’t) and later, more modestly, that it was a good way to reduce risk (it wasn’t). That’s not to deny that here and there were elements within ESG that could add to investor return, but most of them would have already been covered by “C” (common sense).

In reality, ESG was, from its very beginnings as an idea promoted by the U.N. (a possible clue, I think, Dr. Watson), designed to advance a progressive agenda by diverting asset managers (and by extension corporate managements) away from what, barring specific instructions to the contrary, was their primary duty, generating investor and shareholder return. As such, it was a clever way of using other people’s money to promote changes better decided in a legislature than in the C-suite or on Wall Street. And as such it was not only a form of theft, but profoundly undemocratic.

This didn’t seem to worry the left, who were ESG’s beneficiaries, but eventually — and belatedly — the right caught on and started to push back, forcing a debate that Team ESG had wanted to avoid. Up to then, they had gotten away with it. Superficially ESG seemed rather technical, and thus (spot the faulty reasoning) unimportant. Moreover, it was in line with the growth of “stakeholder capitalism,” the idea that the shareholders who owned a business were just another group of “stakeholders” in the way a company was run. It was an idea fueled by an unappealing mixture of cowardice, greed, vanity, and self-promotion.

So far as Wall Street was concerned, ESG was a new (and expensive) product to sell, while asset managers (or those working for them) who disapproved were constrained from speaking out for a range of reasons, not least a fear of angering the big  (politicized) state-run pension funds that make up an important part of many asset managers’ client base.

What eventually triggered the pushback by the right was the growth of increasingly assertive “woke capital,” which coincided with, in 2019, a notorious redefinition by the Business Roundtable of “corporate purpose” away from shareholder primacy to a stakeholder model. Anger over corporate wokery was both real and justified (and it was a more resonant rallying cry than a call for the defense of shareholder primacy). But the use of the w-word allowed ESG’s defenders to complain that their opponents were opening up another front in the “culture wars” (as if the creation of ESG and DEI were not) which, we are supposed to believe, are only fought by Republicans or the “far right.” In reality, at its core, the campaign against ESG was rooted in the defense of property rights and democratic principle.

The supposed ”politicization” of ESG is discussed by Robert Verbruggen in a new article for the Manhattan Institute’s City Journal. In it he focuses on some recent research by finance professors William M. Cassidy and Elisabeth Kempf, based, interestingly, on corporate tweets. The whole article is worth reading, but this, in particular, caught my eye:

The authors report that “the growth of Democratic-leaning corporate speech is closely correlated with the expansion of assets under management in funds with environmental, social, and governance (ESG) objectives.” Firms with high BlackRock ownership also saw a particularly large increase after 2019, when CEO Larry Fink sent a letter encouraging corporations to dive into political controversies.

In other words, companies largely appear to be responding to direct pressure and financial incentives, as opposed to reacting to broader political developments and cultural phenomena. In addition to the overall upward trend, though, some abrupt, temporary spikes did occur around events such as the death of George Floyd in May 2020.

The political alignment of corporate tweets is self-evidently not by itself conclusive (full disclosure: I have yet to read the (paywalled) report; but hope to soon) but, as described by VerBruggen, it reinforces a case that was already, despite attempts to muddy the issue, irrefutable. ESG was “political” well before those nasty Republicans started complaining about it, and its politics were, and are, on the left.