ESG Is Not Part of a ‘Free-Market’ Economy

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A controversial system of social credit scoring is used to score individuals, corporations and banks on their environmental and social performance.

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.”

(For more on ESG principles and people who promote it, click here.

Several states across the nation are considering restrictions to the use ESG credit scores. A lot of policymakers are worried about how banks and financial institutions use ESG to discriminate against individuals and families who do not want to be included in the ESG scoring systems.

As I mentioned, financial institutions use ESG and subjective standards to sanction or reward businesses. These practices will only become more common in the months and years ahead, according to ample evidence.

More disturbing still, additional evidence suggests that ESG metrics could have an immediate impact on families and individuals, in particular those that are related to the environment. This development can be read here.

Lobbyists and pundits have put a great deal of pressure on ESG system opponents. 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 exist It is notThey are an integral part of a true free-market system. These products are intended to limit consumer choices and weaken free-market economics.

Here are seven things to remember when looking at ESG metrics.

1. The banking and financial industries are not “free markets,” not by any stretch of the imagination. These industries are among the most tightly regulated in the country. The federal government and the states have strict guidelines for lending, financial services and any other products that banks or financial institutions offer.

2. There is nothing “free market” about ESG systems, nor other similarly subjective ratings systems. ESG models are in fact collusion. It’s closer to the way mafias operate than it is to a market-based economy. Instead of listening to their customers, companies are required to comply with the needs of small groups of international banks and investors. An ESG program sees Wall Street banks and Wall Street financial firms working together with activists in order to determine which markets or businesses will survive and which will die. These decisions do not take into account free-market concerns. These decisions are instead based upon crony deals between them and representatives from central banks, international institutions and governments. This can be seen in groups such as Principles for Responsible Investment, a worldwide organization whose members have more than $100 trillion. 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 are not created by market forces, but cronyism.

3. ESG systems cannot thrive if central banks flood financial markets with trillions and trillions of dollars worth of 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). Interest rates remain near zero over the years, which means more dollars have flowed into America’s markets. 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. American voters and representatives, and not taxpayer-funded wealthy public corporations should set the market rules.

5. Corporations and banks aren’t private people endowed with God or nature-given rights. These are government creations. U.S. corporations exist only because they have the right to exist. Additionally, these companies often benefit from special agreements that not many people are able to access. The corporations have the ability to access special tax rates, employment laws, liability protections, government bailouts, lucrative government contracts, as well as huge amounts of government funding. 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. These same banks shouldn’t be allowed to refuse services based on a social media post, a vote for a candidate in an election or the industry that a company operates in. Why is discrimination in large banks or financial institutions allowed, but not others? We believe that financial institutions and banks should only make financial decisions. If citizens feel that certain business practices, standards, or other activities should be prohibited, the elected representatives should prohibit them. That is the way a functioning constitutional republic operates.

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. However, these examples do not resemble each other. First, the owner of a cake shop in this situation would be a terrible person. Is still required to make a cake for gay couples — just not a Wedding 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.

Additionally, the Supreme Court already ruled that businesses for profit are not entitled to the same rights of individuals as Americans. Glenn Beck and me discussed the idea at our Great Reset book, published in January 2022. We noted this in the book

It was once a time that even elites could understand that corporations did not deserve unlimited power. 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 that 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.”

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. It is not right for them to have power over political and religious speech. Americans who demand that corporations promote individual rights to gain access to legal protections should not be ashamed.

Justin Haskins ([email protected]) He is director of The Socialism Research Center as well as the editorial director for The Heartland Institute.