Critics like to paint ethical and green investing as a form of socialism, but buying assets to influence them is a sign of a functioning free market.
Sitting in the audience at The Australian Financial Review ESG Summit, it can be easy to forget that millions of people oppose the very concept of environmental, social and governance frameworks on ideological grounds.
A string of business leaders told the Summit they are fully committed to causes like decarbonisation or diversity and inclusion. But in forums far from the Sydney Hilton, the backlash to ESG is gathering steam and shaping up as a flash point in the 2024 US presidential election.
Republican contender and Florida governor Ron DeSantis (perhaps the only candidate that could beat Donald Trump to the party’s nomination) has led the charge. “ESG … is, in effect, a way for the political left to achieve through corporate power what they cannot achieve at the ballot box,” DeSantis wrote in his pre-election manifesto.
In Australia, the federal Coalition under Peter Dutton is singing a similar tune. Outgoing opposition financial services spokesman Stuart Robert decried “woke capital” last year and warned superannuation funds from investing in a way that advances any social or environmental causes.
But truthfully, ESG is not a function of the political left. It is the latest incarnation of the free market – an institution usually protected and upheld by the political right.
As Monday’s Summit made clear, company directors and fund managers are not jumping onboard the ESG bandwagon just to satisfy their personal values as people who believe in climate science and – let’s be honest – probably live in “teal” seats.
They are doing so because it is good business in the traditional sense amid changing expectations from customers and regulators.
As Nicole Beaven, a local executive at Goldman Sachs (hardly a Marxist organisation!), told the Summit, Australia needs to take ESG seriously not because of politics, but because otherwise it risks a “flight of capital” to other markets, especially the eco-friendly European Union and US since the enactment of the Biden administration’s so-called Inflation Reduction Act.
And as KPMG partner Geri McMahon told the Summit, pension funds and other big investors around the world have overwhelmingly concluded that not integrating ESG presents a material financial risk to their members.
Tech billionaire and green investor Mike Cannon-Brookes attracts particular scorn among anti-ESG culture warriors, described by Tony Abbott adviser turned Sky News pundit Peta Credlin as the “king of woke”.
But his blockbuster acquisition of a major stake in energy giant AGL last year was perhaps Australia’s best modern example of neoliberalism in practice.
The Atlassian co-founder used some complex financial instruments to acquire an 11 per cent stake in the company and then used his newfound might on the shareholder register to appoint his preferred board directors.
What could be more capitalist than using the market to take control of the means of production in order to influence them?
Anti-ESG leaders acting like strong-arm socialists
AGL chairwoman Patricia McKenzie euphemistically told the Summit the board had a “slightly unusual” birth. In reality, it was essentially an old-school hostile takeover reminiscent of the famed corporate raids of the 1980s.
The fact that Cannon-Brookes’ ultimate goal is to speed up decarbonisation via the closure of coal-fired power stations under AGL’s control is irrelevant.
Sure, it might be a slightly different outcome to the short-term shareholder return Milton Friedman envisaged in his narrower articulation of for-profit capitalism.
But Cannon-Brookes has shrewdly used the dark arts of financial markets to achieve it. Plus, in a crude and deeply capitalist sense, he simply has the numbers!
Ironically, it is the politicians pushing anti-ESG bills, threatening action against institutional investors and even banning them from doing business in certain US states, that are acting more like strong-arm socialists.
They are effectively mounting a state intervention into the free market, threatening to overturn the right of businesses to make their own decisions in line with their fiduciary duties.
The final point is a critical one. If organisations with a duty to act in the interests of their investors are letting their politics skew their processes, then they deserve the barrage of criticism that would rightly come their way.
But if they believe that ESG is truly supportive of the long-term shareholder return, then they need to make that case, and be willing to admit what they really are: good capitalists.
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