The ultimate luxury good
Implicit in the environmental, social and governance (ESG) framework is the idea that investors can discipline firms and whole economies to bring them in line with social and political goals, says Nicolas Villarreal. The reality is that the financial industry simply does not have that power.
The productive role of finance is to assess whether a particular plan can make money and then provide the liquidity necessary for someone else to make the relevant decisions. With the exception of certain hands-on private-equity firms, the vast majority of the finance industry has no role in the actual planning and undertaking of production.
So if someone with money truly wished to make a difference in the stated goals of ESG investing, they wouldn’t turn to financial markets to try to “push things indirectly on the margin”. They would start a company or some other organisation and see to it that it worked directly towards the desired goals. But this would require financial sacrifices and creativity and effort – “precisely the kinds of discomforts investment funds are supposed to help their clients avoid”.
To see the futility of ESG, consider the question of investing in Russian oil. This was once seen as a preferable option to more polluting alternatives such as coal. After Russia’s invasion of Ukraine, ESG funds scrambled to divest from Russian energy companies and faced criticism for not having done so earlier. But doing so earlier would have been a contrarian move at odds with the logic of ESG at the time. The invasion also saw a total reversal of the previous trend of excluding defence stocks.
In other words, ESG priorities simply reflect the net consensus in industry at any given time, which itself “reflects the general ideological consensus of bourgeois society”.
What, then, is the point of ESG? Karl Marx once called religion the “opium of the people”, a numbing agent that brings a semblance of joy in an otherwise desolate world, but undermines serious attempts to change one’s circumstances. ESG finance is “opium for the bourgeoisie”: the ultimate symbol of the degradation of the capitalist class from “historical agents into passive consumers”. ESG is for those who “need ownership of financial assets to maintain their position in society”, glossed with “a new language of justification” for doing so. Central to ESG, in other words, is the “conspicuous consumption of the bourgeoisie”. It is “the perfect luxury financial good for those who fear taking on the challenge of acting on the world directly”.