Signs of revolt are everywhere. Last month, The New York Times led with a story headlined “Inside the Anti-DEI Crusade”, which reported that “more than 20 states considered or approved new laws taking aim at DEI” in 2023. BlackRock, a pioneer of ESG investing, just announced mass layoffs in its ESG division. It was recently discovered that assets under management in ESG had declined by $5 trillion over two years.

This string of victories might suggest that the swift “de-wokeification” of business is not far off. After all, the C-Suite represents the only locus of power in American life to have a documented Right-leaning bias. One study last year found that registered Republicans outnumbered Democrats among top-earning executives in S&P 500 companies by a margin of 69% to 31%. It seems logical enough, then, to attribute the relentless equity, gender and climate activism of American businesses over recent years to pressure from a shareholder base, media and society in the throes of a sociocultural maelstrom. It would seem equally logical to predict that as this maelstrom subsides, managers will return to their traditional role of maximising shareholder returns, while leaving the political realm to elected politicians.

But wishful thinking will only lead to disappointment. Such optimism depends on the tenuous assumption that business leaders, when left to their own devices, will lead their businesses the way they vote. In today’s America, that would require them to be willing to see their own elite position severely curtailed or taken away entirely. And to give up one’s status for one’s values is a bigger sacrifice than most people are willing to make.

To be sure, C-Suite positions accord their holders wealth and status within a company or an industry. But that most tantalising of emoluments — social status — is doled out by other institutions, most notably media, academia and government, all of which have a decidedly different political orientation from the C-suite. It is, therefore, no surprise that, even while Republican executives outnumber Democrats by more than 2-1, the CEOs whose wisdom is most regularly exalted in the mass media —  say, Warren Buffett of Berkshire Hathaway, Bob Iger of Disney, or Larry Page (formerly) of Google — are Democrats. Meanwhile, Right-leaning CEOs and founders too powerful for the media to ignore — say, Elon Musk or Peter Thiel — are cast as out-of-touch, if not a bit sinister.

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If this isn’t enough to remind a CEO which side his bread is buttered, he can consider the recipients of those most golden of post-retirement parachutes, Distinguished Professorships at Harvard or the Wharton School of Business. (As an ex-employee of the former, I can vouch that the ideology of its practice-based faculty mirrors Buffett’s far more closely than Musk’s.) Or he can observe which titans of finance are awarded honorary doctorates or deliver homilies at the World Economic Forum (WEF) in Davos, the Aspen Institute, and the Munich Security Conference.

Beyond the quest for status, there are more quotidian considerations that encourage business leaders to stay the course with DEI and ESG. Every year, as America’s regulatory state grows, so does American businesses’ dependency on the good will of regulators and government partners. And once one penetrates below the rank of presidential appointees — even if November brings a second Trump Administration — the political makeup of regulators is overwhelmingly Democratic. Many CEOs will conclude that running afoul of regulators to satisfy their personal values simply isn’t worth it.

For the first time in years, shareholders and investors are fighting back against the American C-suite. It’s too late, however, for their revolt to have a deep and durable impact on company behaviour. That is because the shareholder is no longer king in American business, and he hasn’t been for a long time. The “stakeholder” is.

In American business law, the cornerstone of fiduciary duty is the business judgment rule (BJR), which stipulates that managers are exempted from legal liability for violating their duty to the shareholder, provided that they act “in good faith”, in the company’s interest. Classically, “the company’s interest” has been defined narrowly as maximising shareholder returns. Over the past decade, however, the definition of a company’s “interest” has been quietly expanded — in sources ranging from the Harvard Law School Forum on Law and Governance to that consummate arbiter of business conventional wisdom, Investopedia — from shareholder benefit to “stakeholder” benefit.

What is a stakeholder? Pioneered by WEF Chairman Klaus Schwab decades ago, the term refers to any “party that has an interest in a company and can either affect or be affected by the business”. The term is wide enough to encompass not only shareholders, but employees, customers, government regulators, communities, entire nations, even the whole world. Under the stakeholder system, there is no hierarchy, no order in which the different stakeholders must be served. It is — critically — so slippery a concept that virtually any business decision can be justified on the grounds that it benefits one stakeholder or another. In this way, it accords unprecedented power to managers, who, by virtue of their positions, can claim an understanding of stakeholders’ needs shared by no one else.

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Stakeholderism enables managers to do two things that were far more difficult under the conventional shareholder model: first, to pursue ends other than profitability without running afoul of the BJR; and second, to avoid personal responsibility for unpopular business decisions by claiming that other “stakeholders” have demanded them. If they are to win the corporate battle against DEI and ESG, therefore, shareholders need to be ready to recognise and resist three common “stakeholder” dodges: employee activism, consumer activism and government regulations.

Let’s start with employee activism, which refers to pressure exerted on managers by company employees to adopt or reject a certain policy or position. Employee activism is a real concern for managers at many companies, particularly those in industries that attract politically engaged young people. But it is also easily exploited by managers for their own ends. This is due to a fundamental asymmetry in information: managers know what their employees are saying, but the public — and even shareholders — largely do not. Therefore, when a manager justifies a policy decision on the grounds that key employees threatened to leave the company if they decided differently, who is to say that they didn’t?

Take Disney, an expert in the use of employees as a corporate shield. In 2022, in response to a new set of education regulations related to sexuality in the company’s home state of Florida (monikered as the “Don’t Say Gay” bill), the company capitalised on employee activism to oppose the law. Following a series of walkouts by some employees, Disney’s various outlets issued statements condemning the law, such as this tweet by Disney+: “We strongly denounce all legislation that infringes on the basic human rights of people in the LGBTQIA+ community — especially legislation that targets and harms young people and their families.” Disney subsequently committed to ceasing all political donations within the state of Florida, donated to the Human Rights Campaign, and included a gay kiss scene in the upcoming movie Lightyear.

The narrative, as widely reported, was that Disney employees had acted en masse to persuade their bosses to take a stand against bigotry following an insufficiently indignant reaction from CEO Bob Chapek. But there was another side to the story which only received coverage in conservative media outlets. It turned out that a group of conservative-leaning employees at Disney had also written an open letter to management, urging Disney to remain “politically neutral” and arguing that the company “shouldn’t be a vehicle for one demographic’s political activism”. Disney, they added, had created an oppressive political culture within the company: “Employees who want [Disney] to make Left-wing political statements are encouraged, while those of us who want the company to remain neutral can say so only in a whisper out of fear of professional retaliation.”

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Here were two groups of Disney employees taking contradictory positions. But when Disney management sought to express “solidarity” with its employees, it did so by capitulating totally to the first group while ignoring the second. And yet, if a shareholder irate over Disney’s antagonism of its home state, its governor and legislature were to take management to court for violating their fiduciary duties, he would have faced a severe uphill climb. After all, Disney’s employed “creatives” mean the difference between industry leadership and falling behind. And when it comes to what those employees really want, or whether one group of dissenting employees poses a greater threat to the company than another, who is in a better position to decide than the managers? This was none other than a victory for managers over shareholders, using employee activism as a shield.

Indeed, as if to demonstrate just how fully he has internalised this principal, Iger, responding to a separate imbroglio over the restrictive 2019 abortion law in Georgia, speculated portentously: “I think many people who work for us will not want to work there, and we will have to heed their wishes in that regard.” Quartz, reporting on Iger’s comments at the time, asked: “Was this another victory of sorts for employee activism before employees even acted?” This was the wrong question. It was, rather, another victory for managers over shareholders, using employee activism as a shield.

The principle can also apply to customer activism. While customer feedback can be more public than employee sentiment, much of it is also proprietary — collected through meetings and correspondence with clients or customer surveys. The prerogative of packaging this information and determining how it should influence company behaviour falls to managers. The same goes for government regulations. When the task of interpreting the regulatory climate is left solely to managers, they can very easily end up passing off their own political aims as regulatory risks, or even lobbying behind the scenes for the very regulations that they present to their boards as regrettable faits accomplis.

The long-and-short of it is that shareholders are in a far weaker position compared with a decade ago. Their only avenues to influence company policy now are through questions brought to corporate boards, and through the hiring and firing of managers and board members. If they are to fight back, they must learn to use those avenues to maximum effect. Firstly, by demanding thorough proof from managers every time a decision is attributed to the needs of a “stakeholder”, to make sure it’s not another dodge. And then, by hiring and firing managers and board members based on who will prioritise benefit to shareholders, rather than their public image or personal political aims.

Managers will always feel the urge toward “mission creep” from the purely commercial to the political. When they succumb to it, the democratic process surrenders to what the sociologist C. Wright Mills once termed a “power elite” — an amalgamation of public and private sector that offers us a single orthodoxy rather than a marketplace of ideas or products. Shareholder capitalism is democracy’s vital firewall between the public and private sector, and it is under threat. It is nothing less than the patriotic duty of all American investors and board members to reinforce it for the protection of our republic.

Almost 20 years later, the first Global Compact Leadership Summit is considered the birthplace of the ESG movement, a kind of constitutional convention for global “governance”. Annan had been championing this new approach since at least 1999, when, at the World Economic Forum in Davos, he announced the creation of “a global compact of shared values and principles, which will give a human face to the global market”. The aim would be to create a “compact” of agreements that could keep up with the radical change being wrought by globalising markets. It would, of course, do much more than that.

Since Annan’s proclamation, ESG has morphed into a social and corporate inevitability. Its manifestations are evident everywhere — from academia’s heady embrace of Diversity, Equity and Inclusion initiatives to the corporate world’s collective gush over protecting the environment, preventing racism and advancing whatever else might be the “current thing” of international righthink.

Its rise appeared unstoppable — until 2023 arrived. Only this month, Republicans in Congress announced they would subpoena BlackRock, the asset management firm most closely aligned with ESG, and State Street, another Fortune 500 financial heavyweight, to investigate whether their ESG policies violate anti-trust law. Days after that news broke, the state of Tennessee announced it was suing BlackRock for making what it called “misleading” statements about ESG.

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For its part, BlackRock — undoubtedly the greatest champion of ESG — is retreating, backing “just 7% of environmental and social proposals at companies’ annual meetings in 2023 proxy season, down from 47% two years earlier,” according to the Financial Times. In the UK, signs of a brewing backlash are just as evident. The Confederation of British Industry (CBI), a major lobbying group, has hired Rupert Soames, a critic of ethical investing, as its next president.

For some, the pivot away from ESG may come as a shock. But the reality is that the equilibrium has been shifting for more than a year. One of the strongest indicators that all was not well with ESG came from the most unlikely of places: the annual letter from ESG’s most high-profile supporter. Larry Fink, chairman and CEO of BlackRock, began publishing his letters to shareholders and CEO in 2012 in which he introduced ESG-speak into the halls of capitalism. But this year, Fink told the Aspen Ideas Festival that he’s no longer using the term since it’s been “weaponised” by critics. And ESG was notably absent from his 2023 letter in March. This might be no more than a symbol of the influence of ESG. But in the context of a decade during which the acronym was proclaimed as a shibboleth of a new kind of global corporate power, one whose proponents construe profit-seeking as a means to an end, that end being nothing less than improving the lot of mankind, it is nevertheless significant.

It’s not hard to see why ESG won broad, even fervent, appeal in its early days. By the mid-2000s, American capitalism had begun to resemble its own caricature. The global economy of the late Nineties and early 2000s was defined not just by excess, but by excessive scandal: the ruinous “privatisation” of Russia; the triple header of Enron, Long Term Capital Management, and Bernie Madoff; and in the background, an Iraq War architected by the former CEO of a major oil industry services company. And then came the mother of all scandals: the 2008 Financial Crisis.

Today, with the media tightly aligned with ESG-embracing Big Business, it’s easy to forget how antagonistic the press was to large companies in the early and mid-2000s. “Transnational corporations” became a go-to epithet insinuating a cartel-like form of legalised corruption; financiers became objects of derision; films such as The Big Short, Arbitrage, Erin Brockovich and Thank You For Smoking highlighted corporate malfeasance.

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The emergence of ESG may have been rooted in a genuine desire to do better. It’s hard to argue with calls, such as that of Brazilian president Lula da Silva at Annan’s 2004 Global Compact Leadership Summit, to see global leaders “engaged in a campaign to free all human beings from hunger”. The same holds true for preserving the natural environment and sharing the benefits — not the externalities — of corporate progress. After all, who doesn’t want a better world?

The problem with ESG, however, is that the practice didn’t match the theory. While ESG set out to make a difference, it ended up becoming a way for Big Business to flip the mass of negative attention into a positive, highly appealing ethos. ESG was all about upholding human rights and ensuring the planet didn’t get incinerated at the altar of ruthless capitalism. This meant that if you were against ESG, you were against ethics itself. And if you opposed the prerogatives of the Big Business espousing ESG, you were a heartless devotee of shareholder capitalism. This binary attitude suited firms such as BlackRock, which depend on, and compete fiercely for, a continuous inflow of fresh capital to invest. If BlackRock could successfully make the case that (a) your firm is the standard for ethical investment and (b) every other approach is so inefficient in the long term that it’s functionally corrupt, then the conclusion regarding which firms get the money is foregone. In other words, BlackRock found a way to win.

In the decade since Larry Fink began writing his letter to shareholders, in which he championed ideas such as “corporate governance and responsible investment”, BlackRock’s market cap quadrupled. The company now has $9 trillion under management, a testament not only to Fink’s financial genius but also to his unparalleled access to global leaders who make decisions at the billion-dollar level.

Fink, as a result, became a darling of the Davos set — and it was there that, in January, he chose to make another ESG confession, this one vastly more significant. At the WEF, he admitted that his firm’s close association with the ESG movement had cost BlackRock an estimated $4 billion in managed assets. While for many (if not most) asset management firms, this would be a fatal blow, it’s in fact a mere trickle lost in BlackRock’s financial ocean. But it’s also a headline. And, no matter how you spin it, it’s a loss — one that could spell the start of a devastating longer-term trend.

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But there was another, more overlooked signal that all was not well with ESG. When Fink released this year’s ESG-free letter, it contained a second omission: in previous years, Fink wrote one letter to CEOs and a separate one to investors. This neatly reflected the concept of “stakeholder capitalism” at the heart of ESG, which calls for equal consideration of all the people involved in a company’s ecosystems, including employees, customers, and the public, not just its shareholders. But this year Fink wrote only a single letter — to investors. Was Fink signalling a retrenchment, a return to the unglamorous, nuts-and-bolts endeavour of shareholder capitalism?

The idea of stakeholder capitalism is attributed largely to Klaus Schwab, creator and chairman of the World Economic Forum, who began spreading the idea in a 1971 study he co-authored called “Modern Company Management in Mechanical Engineering”. This top-down approach to shaping how wealth is created, and in whose hands it ends up, played well to a media educated in America’s Marxism-infused liberal arts colleges. And the business crowd loved it too. Suddenly, bland business conferences felt less like trade conventions and more like geopolitical summits. You weren’t merely investing in funds, selling widgets, or cooking up ever more optimised ads. You were saving the world.

By 2021, ESG had reached its peak not just of influence but power. The pandemic seemed proof of the urgency of its policies. Endlessly, we heard that Covid was a result of mankind “encroaching” on nature, squeezing it until this abstract entity struck back. We were informed that cooperation was essential and non-compliance not an option.

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But ESG’s recent victories are now starting to look pyrrhic. In 2022, Texas led a red-state boycott of BlackRock, announcing plans to pull more than $3 billion out of BlackRock funds. Since then, Republican state legislatures, including those in Florida, Kansas and Idaho, have passed laws that ban or limit the consideration of ESG.

In an even more existential blow to the ESG vision, money has become expensive. During the era of Zero Interest Rate Policy, there was enough cheap money, and enough margin, to sacrifice some of it for the sake of a good cause. But when money is tight, consumers are jittery, and investors running scared, companies take what they can get.

The cultural backlash underway is even bigger. In April, it only took a single misfired influencer outreach effort by Bud Light, which sent cans of beer to Dylan Mulvaney as part of a DEI-guided, trans-friendly campaign, to knock the brand from its top spot in American beer sales, carving 13% off its revenue. Even the Magic Kingdom has not escaped unscathed. After its battle with Florida Governor Ron DeSantis, among the most vocal opponents of ESG in American politics, Disney is now at its most vulnerable in decades, having seen billions in shareholder value wiped away and its once-pristine brand tainted by political controversy. There is no reason to think the trend will slow.

If there is one thing businesses and markets hate, it’s uncertainty. And ESG is starting to look like another unnecessary risk — more so given that ESG has become a valuable political leverage point for politicians looking to ride the surge of populism. This doesn’t mean ESG is done: one of the major problems identified by its critics is the extent to which it has embedded in vital institutions. But we may be at a turning point, and if the risk rises higher, and there is no substantial reward to follow, ESG might find itself on the corporate chopping block.

The reality, however, is much grimmer. What has landed us here is a combination of three of the Biden administration’s signature policies — its aggressive support for ESG, its proxy war against Russia, and its sabre-rattling approach to China. The result is that the US is now in an energy chokehold right when the country needs as many options as possible.

After nearly two years of biting inflation, developed nations are starting to believe that the beast of relentlessly rising prices has been tamed. But as oil prices again barrel towards $100 — with one industry CEO predicting it could reach a devastating $150 — that could be about to change. Earlier this month, Saudi Arabia announced that it would extend a July production cut of one million barrels a day through the end of 2023. On its own, this news is bad enough. What makes it worse is that the Saudis are now apparently coordinating energy policy with America’s enemy number one, Russia, which has cut 300,000 barrels a day for the same period.

For Joe Biden, the timing couldn’t be worse. He is polling neck and neck with Donald Trump, and is facing an onslaught of challenges from House Republicans related to the business dealings of his son, Hunter. But from a policy point of view, the news is far more serious. The causes of surging oil prices trace back to structural changes Biden made to the economy, combined with now intractable foreign policy commitments, which, this late in the game, cannot be easily undone.

Those decisions go back to Biden’s very first day in office. On 20 January 2021, the new president signed an executive order revoking a permit required for the Keystone XL, an extension of an existing pipeline that would have transported an extra 830,000 barrels per day from Canadian oil fields to refineries in Texas. The move had its roots in Biden’s campaign strategy, which positioned Biden as a “climate change pioneer”. According to the text of Biden’s executive order: “The United States and the world face a climate crisis. That crisis must be met with action on a scale and at a speed commensurate with the need to avoid setting the world on a dangerous, potentially catastrophic, climate trajectory.” The Keystone XL pipeline “disserves” American interests, Biden said.

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The media bolstered the decision, arguing that, with oil then trading at around $60 per barrel, the pipeline was not economically viable. But it would take just five months for oil to rise 50% to around $80, and a little more than a year for the price of oil to double to about $120 per barrel, pushing inflation up significantly. More importantly, Biden’s executive order and the decision by developers to abandon the pipeline signalled a shift in the policy winds on US energy and oil exploration. With the price of oil rising and the government taking an aggressive ESG-minded position on domestic exploration and development, oil producers went from investing in technologies such as new shale extraction methods to a new mode of profit-taking, where innovation is stopped in favour of extracting the profit from previous years’ investments.

When Biden signed the order, there was little or no inflation on the horizon. By the spring of that year, when inflation jumped to 4% and kept rising — with oil prices tracking it, resulting in a 50% jump in prices at the pump — the administration seemed to grow desperate. In November 2021, Biden began tapping the Strategic Petroleum Reserve, a reservoir of oil meant to weather the country through war. This began with an initial release of 50 million barrels (out of a total capacity of 714 million), in the hope that the move would lower fuel prices and curb inflation. It didn’t. Over the course of the subsequent year, Biden would release another 180 million barrels of oil from the SPR, leaving the SPR at its lowest level in four decades.

If the White House appeared desperate in the winter of 2021, the following spring would bring about a series of events that would make the most powerful government in the world look like a third-rate power. In March last year, hoping to secure a promise by Gulf producers to increase production, Biden reached out to Mohammed Bin Salman, the de facto ruler of Saudi Arabia, and the UAE’s Sheikh Mohammed bin Zayed al Nahyan. Astonishingly, both men declined to take the call.

While Opec+ lives up to its role as the world’s most powerful oil cartel, there generally has been enough wiggle room for American presidents to influence Saudi production. This is partly because, for the past three decades, Saudi Arabia has been more of a reformed American ally than a leverage-pushing adversary. The Saudis lowered prices in response to a lobbying effort by President George W. Bush in 2004 — a success quickly spun by the anti-Bush media as a Saudi attempt to interfere in US elections and “buy” the president — and again in 2008. Most importantly, whether or not they complied, and in some cases they didn’t, they were willing to hear the American president out.

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The reasons for Biden’s fall from the Gulf’s graces can be traced back to his role in leading aspects of foreign policy in the Obama White House. Specifically, Obama relied on Biden to advance and pass the nuclear deal with Iran which, in exchange for the removal of US sanctions, would see Iran slowing development of its nuclear programme and open it to international inspections. The Saudis, along with other Gulf allies, considered the deal a betrayal that endangered their national security.

After Trump scuppered the deal, Biden campaigned on reinstating it. In the context of Biden’s other Gulf-related campaign pledge — to turn Saudi Arabia into a “pariah” — and the barrages of missiles falling on Saudi Arabia from Iran-backed rebels in Yemen (which Trump also permitted without any significant action), the move seemed to double down on Obama-era fecklessness, leading to Saudi Arabia and UAE’s decision to not only refuse to increase oil production but to not pick up the phone.

By last October, Biden’s administration had no choice but to U-turn as it came out calling for an increase in US oil production. “You should be using these record-breaking profits to increase production and refining,” Biden said at an October 2022 press conference. That, however, was no longer possible. The stock of cheap, easy-to-access shale had been pulled out of the ground, exhausting the country’s ability to continue ramping up production. And the Keystone pipeline extension that would have brought nearly one million barrels a day from Canada to Texas had been cancelled — by Biden.

While the administration was attempting to retrofit its energy policy, it was formulating the most aggressive economic response to a foreign war in memory. In April 2022, two months after Russia invaded Ukraine, the administration unleashed what it accurately characterised as “unprecedented sanctions” against Russia. Biden claimed that, already, the sanctions were achieving the administration’s intended effect of “devastating” Russia’s economy.

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Biden had resisted taking the most drastic economic step of banning Russian banks from Swift, a key component in the international banking system that allows banks in different countries to transact with each other. Biden cited oil prices as one reason, since without the ability to purchase Russian oil in dollars via Swift, Western allies would effectively be removing the country’s oil production from the global pool.

Yet while the US media reported on 25 February 2022 that Biden had rebuffed calls, including from some Democrats, for the Swift ban, the the very next day, the White House and its European allies announced that a number of Russian banks would indeed be blocked from it. A White House official told CNN that the move, which Biden had nixed just 48 hours earlier at a press conference, was an “unprecedented act of global sanctions coordination”.

Predictably, within days, the price of oil had risen by 25%. It would continue to rise, eventually hitting a decade-high at $120 per barrel. But beyond oil prices, the sanctions culminating in the Swift ban presented another risk, this one strategic. On a G7 call prior to the decision, some allies of the economic block voiced the fear that, as the Financial Times reported, “removing Russia from Swift would accelerate efforts by it and China to create rival payment systems that did not use the US dollar”.

It took only a few weeks for China to capitalise on exactly this vulnerability. In March, China and Saudi Arabia began talks concerning settling oil transactions between the two countries in renminbi. By the end of the year, China turned this into an international strategy as President Xi Jinping “opened the door to trading crude oil and natural gas” in renminbi, as S&P Global reported in a December market insight report.

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At the time, there was intense scepticism regarding whether China would be able to pull this off in a meaningful fashion — and for good reason. China’s capital controls, its fixed currency and a relatively shallow and illiquid capital market, relative to the dollar, have made investors wary of parking their capital in renminbi-denominated accounts.

But that was before the US leveraged the dollar as an economic weapon against a country it was not even at war with. Today, the picture is changing. In March, China completed its first liquefied natural gas trade in yuan, in this case with the UAE. The yuan is now the dominant currency for China’s own cross-border payments, a first in the country’s modern history. Brazil and Argentina announced this year they would allow renminbi payments in transactions with China. Perhaps most significantly of all, over the past year, China has paid for almost all its Russian oil in its own currency.

In case China did not have enough reason to attempt a restructuring of global trade, Biden, in the midst of Chinese efforts to shift international payments to the yuan, publicly stated that the US would respond with military force if China were to invade Taiwan. This was a break with decades of US policy, and while the administration walked back the claims the next day, it would not take a leap of imagination on the part of Chinese officials to wonder how the US would leverage the country’s role as the backbone of global trade to alter the balance of power.

This is not evidence of the kind of de-dollarisation that China and other nations have sought for decades. But it does signal a new approach to strategic relations between countries such as China and Russia — and one that has come at the severe cost of America’s ability to influence oil prices. China and Russia are now not just allies, but economically bound to each other. Russia is no longer isolated but at the centre of a new axis of power. Worst of all, even the most extreme sanctions and complete weaponisation of the dollar have proved, if not ineffectual, then at least unable to achieve their strategic aims.

And, of course, winter is coming. With oil prices soaring, the US unable to meaningfully increase production, and Ukraine mired in a faltering counter-offensive, it seems that Biden’s most virtue-signalling policies will have the effect of simultaneously limiting the country’s options on trade, energy and foreign policy. The smart move would be to tap out by walking back one (if not all) of these policies. But with the US careening into an election year and Democrats alarmed by a slate of recent polls, for Biden failure may be the only option.

ESG first entered the investment and banking mainstream as a survival strategy. In 2009, BlackRock had acquired Barclay’s Global Investors Ltd, making it the largest investment firm in the world with almost $3 trillion in assets under management (AUM), a sum larger than the total revenue of the US federal treasury. Politically speaking, BlackRock’s emergence as an investment superpower could hardly have come at a worse time. Amid the wreckage of the 2008 Financial Crisis and then the ululations of the “Occupy Wall Street” movement, public suspicion of big banks and corporations was at an all-time high. Finance, in particular, became a morality play: financial institutions were the greedy villains, while policymakers played the heroic civic advocates reining them in. For BlackRock, the chances of continuing to grow freely in such a hostile policy climate seemed remote.

But BlackRock’s leaders had an epiphany — one that would repeat itself in the C-suites of several of its competitors in the early 2010s. What if big investment houses could rebrand themselves as so unimpeachably virtuous and civic-minded that their virtue outshone even their regulators themselves? Such a strategy would be game-changing. Not only would it afford investment houses a mile-wide road to limitless growth; it could even, if played judiciously, accord the companies themselves quasi-governmental power.

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The ESG principles underpinning that strategy had already been written. The 2004 United Nations report “Who Cares Wins,” which introduced the principles of ESG to a worldwide audience, suggested that investors would make higher long-term profits if they put more emphasis on environmental and social progress. The small print was that the task of defining these impossibly broad categories (“environmental” or “social”) would be left to international institutions. Per those institutions’ priorities, “environmental” would mostly focus on implementing CO2-reduction goals, while “social” would mean anything related to the UN’s stated social goals on issues such as gender parity, racial justice, and poverty reduction. In other words, from the very beginning, the goal of ESG was to harmonise the priorities of political elites with those of business leaders. This approach was nothing new in Europe, where Klaus Schwab and his World Economic Forum (WEF) had long blurred the lines between business and government. But in the US, where the WEF ethos had failed to take root and the shareholder remained king, it was a radical departure.

When the UN invited global financial institutions to sign onto the Principles for Responsible Investment (PRI) in 2007, the total global assets managed by ESG-minded investing vehicles was around $10 trillion. By 2020, a mere 13 years later, that has grown to more than $30 trillion worldwide and more than $17 trillion in the US. New private equity firms and investment outfits devoted purely to ESG — such as Al Gore’s Generation Investment — were springing up every year, and most large US investment firms began offering ESG-mandated mutual funds, leading Bloomberg in 2021 to project $53 trillion invested in ESG by 2025.

As the ESG agenda took hold, the individual investor increasingly found himself shunted aside. Admittedly, the roots of this shift lay in the early Eighties, when federal proxy voting rules were changed to allow fund managers such as BlackRock to vote on behalf of their clients. The idea was a good one at the time, in that it recognised that few individual investors have the time to attend shareholder meetings or the wherewithal to make their views known to company leadership. But it handed vast power to investment companies — admittedly under the understanding that they would vote on behalf of their clients for one purpose only: the maximisation of profits and shareholder returns. It was, however, only a matter of time before this power was exploited.

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By Paul Kingsnorth

That time came in the 2010s, as investment companies began instead to vote in line with the ESG agenda. Company leaders who opposed this were either quickly made to see its inherent wisdom, overruled, or out of a job.

In 2020, BlackRock voted at 16,200 shareholder meetings on 153,000 company proposals. Frequently, these votes were against company management. According to the company’s own Investment Stewardship Annual Report: “In 2020, we identified 244 companies that were making insufficient progress integrating climate risk into their business models or disclosures. Of these companies, we took voting action against 53, or 22%. We have put the remaining 191 companies ‘on watch’. Those that do not make significant progress risk voting action against management in 2021.”

In the same report, BlackRock boasted of having voted against management more than 1,500 times for “insufficient diversity” in company management. This interventionist approach was hardly limited to BlackRock. At State Street Global Advisors, in 2017 alone, proxies voted against the re-election of board members at 400 companies that it felt had made insufficient effort to appoint female board members.

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But for huge investors such as BlackRock, attending shareholder meetings remained a rather inefficient method of coercing company managers into accepting the Good News of ESG. By 2012, Larry Fink had already discovered a far better method: the royal proclamation.

Fink’s first few letters contained tell-tale signs of the revolution to come, particularly in 2015, when he chastised managers for returning too much money to their investors in dividends and buybacks. Then, in his 2018 letter, he went a step further, advocating that CEOs step away from traditional shareholder capitalism and toward ESG by embracing the idea of “stakeholders”. In his words: “Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.” “Every company,” he wrote, “must not only deliver financial performance, but also show how it makes a positive contribution to society.” Allow me to translate: On behalf of millions of shareholders I’ve never met, I declare that they no longer truly own the companies they have invested in. Society does.

As Vivek Ramaswamy convincingly argues in his book Woke, Inc., this feint of widening the pool of “stakeholders” beyond shareholders marginalises the shareholder and elevates the manager. By making companies answerable to everyone, proponents of stakeholder capitalism make them answerable to no one.

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In his 2020 letter, modestly subtitled “A Fundamental Reshaping of Finance”, Fink decreed that all American companies must redesign their businesses to align with the goals of the 2015 Paris Agreement on climate change, with the implied threat of shareholder activism or even divestment if they failed to do so. To that end, he declared that all portfolio companies would thenceforward need to define climate risk as investment risk in their financial analyses — a measure designed to disadvantage companies engaged in heavy industry or fossil fuel production or use, and likely shunt them into cleaner businesses. Furthermore, since the nearest-term climate risks for many businesses are government climate regulations rather than the actual effects of climate change, this is a thinly-disguised method for coercing companies into complying with international climate agreements.

Second, Fink stipulated that companies must disclose their climate risk to investors using accounting methods created by two organisations which are constituted primarily of representatives from investment companies including BlackRock and international organisations such as the UN, World Bank, and IFC. Fink ordered that these disclosures specifically draw a path to the two-degree global temperature increase stipulated by the Paris Agreement.

A reader sympathetic to Fink’s goals might reasonably ask why such use of the bully pulpit is a problem. After all, if companies don’t do the right thing on their own, why shouldn’t Larry Fink incentivise them to do so? But in making his demands, Fink is speaking with the authority of an elected representative who has polled his investors and found that his proposals have their universal support, when he has not.

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Considering that BlackRock is headquartered in the United States, which within the last decade elected a president who withdrew America from the Paris Agreement, there are probably many BlackRock investors who would either reject ESG principles out of hand or else disagree with Fink’s methods of applying them. For example, while many Americans would agree with Fink that climate change is cause for concern, some would dispute the idea that reaching Net Zero emissions by 2050 is a workable strategy, or even that businesses should focus on climate change at the expense of prioritising other problems such as hunger, poverty or terrorism. Similarly, some individual investors might disagree with State Street’s insistence on gender and diversity quotas for company boards.

Living as we do in a free-market capitalist democracy, there is supposed to be room for disagreement on questions such as these. When companies disagree with one another, the result is that they choose different strategies, allowing the market to choose the best strategy in the long term. But when the CEOs of every company in America answer to Larry Fink first and their actual investors second, that diversity — and therefore, the probability that we ever discover the best strategies — plummets.

There is a further irony in this. Over the past decade, as investment houses such as BlackRock have exerted ever-greater influence over decision-making at their portfolio companies, investors have in fact been signalling for them to take a step back. We can see this in the growing popularity of passive strategies (in which investment companies take a backseat role) compared with active strategies (in which they more frequently buy and sell stocks and actively intervene in the affairs of portfolio companies to improve performance). In 2011, 21% of US AUM were managed passively, compared with 79% managed actively; by 2018, the split had narrowed to 36% to 64%. Parity is projected for 2025. BlackRock’s own active-to-passive balance has followed a similar trajectory. Their portfolio had been primarily actively managed until 2009. But by 2018, $3.9 trillion of their $6 trillion assets were invested passively. Just as BlackRock’s customers were voting with their dollars for the firm to intervene less in company policy, BlackRock’s leaders were declaring it their sacred duty to intervene more.

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Over the years, ESG advocates have parried charges of overreach by responding that investing with ESG criteria is just as lucrative as traditional investing. This has always been a dubious argument: after all, if favouring ESG-friendly companies were a prudent financial strategy, an investor would not need to publicly commit to ESG in order to do it; it would simply be the best financial decision.

The evidence of ESG’s performance has until recently been ambiguous enough to offer ammunition to both sides. But that has begun to change. In 2022, eight of the top ten actively managed US ESG funds (including one of BlackRock’s) performed worse than the S&P 500. This demonstrates two things. First, that ESG funds are not some financial miracle. And second, that the performance of ESG funds is tightly bound to the tech industry, which had a terrible year in 2022. (Unsurprisingly, tech stocks are overrepresented in ESG funds, since it is easier for tech companies to claim low environmental impact than companies that actually make things.)

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Not only is ESG failing to make money, but it is not even achieving its non-financial goals. One sizeable Columbia University and London School of Economics study published in 2021 found that US companies in 147 ESG portfolios had worse compliance records for both labour and environmental rules than US companies in 2,428 non-ESG portfolios. They also found that companies added to ESG portfolios did not subsequently improve compliance with labour or environmental regulations. This study added to a growing body of evidence that ESG investing is not only anti-democratic but ineffective.

Over the past few months, investment companies have begun to take notice. Of particular note was investing giant Vanguard’s December 2022 decision to pull out of a Net Zero 2050 pledge. Last week, Vanguard CEO Tim Buckley told the Financial Times: “We don’t believe that we should dictate company strategy […] It would be hubris to presume that we know the right strategy for the thousands of companies that Vanguard invests with.” The just-announced presidential campaign of Vivek Ramaswamy, one of the most articulate spokesmen on ESG’s excesses, will doubtless only amplify demands for corporate independence.

Larry Fink has not yet posted a 2023 letter. Perhaps he is delaying as he contemplates how to respond to the growing anti-ESG tide, a tide he bitterly decried at the January WEF in Davos. I might be unusual among ESG detractors in my belief that Fink should write another CEO letter this year. But it should be a very short one, the writing of which is unlikely to take too much time away from his busy schedule of saving the planet through regular flights to Aspen and Davos. The letter should read, simply:

Dear CEO,

I’m sorry.

As with many such super-policies — including the now-moribund “globalisation” for whom Davos 2023 served as a five-day, open-casket wake — answers regarding ESG have been handed down from on high before those most affected by it ever asked the questions. These are the basics: what is ESG? What does it mean for us? And, guided as it is by the very visible hand of the Davos elite, where is it taking us?

The Environment, Social and Governance movement grew out of a late 20th-century approach that used capital as a means of fighting for social and moral causes. The boycott of Apartheid South Africa is frequently cited as a landmark case, with businesses pulling out of the country in response to the regime’s brutal and racist policies — a progenitor of today’s approach to Russia. But the watershed moment for ESG came in 2004, when a UN initiative called the Global Compact released a report called “Who Cares Wins”. Issued by some of the world’s biggest (and most financially aggressive) banks, the report laid the groundwork for how the financial world can “integrate environmental, social and governance issues in analysis, asset management and securities brokerage”.

Since then, the global capitalist ecosystem has been able to “integrate” ESG issues to an extent the movement’s founders could have only dreamed of. Today, ESG is more a pledge of corporate legitimacy than it is a framework of ethical guideposts, with some of the world’s most corrupting, polluting, and abusive firms taking up the green standard of the movement with an alacrity that’s at times unnerving.

Today, companies from tobacco giant Philip Morris to BP — whose Deepwater Horizon platform dumped 200 million gallons of oil into the Gulf of Mexico — don’t just tout their ESG bona fides but have devoted millions in crucial resources to the endeavour, building entire corporate departments to purpose. Even Gazprom, the Russian oil giant that feeds Putin’s coffers with petro-dollars, puts out an impressive “Sustainability Report” that notes the company’s commitment to ESG. “As a globally significant energy company, Gazprom always conducts business in a considered and responsible way,” Gazprom chairman Alexey Miller writes in the report’s introductory message.

This is nowhere more apparent than at the World Economic Forum’s annual confab at Davos, which I attended this year not as a member of the WEF, but as the guest of a New York-based think tank. At Davos, even small fry like me could hear the watery murmurings of ESG coursing through the currents of power. It was everywhere — in every break-out meeting, every wine-drunk dinner, and each trudge through the snow-lined streets towards the next event.

Like many global ideologies, ESG bears a kernel of truth. After witnessing the predations of successive financial scandals, the exploitation of vulnerable people in sweatshops and mines, and the wholesale destruction of natural environments, it’s hard to argue that capitalism does not need a broader system of checks and balances to reign in humanity’s perennial tendency towards excess. This idea became excruciatingly apparent during the early 2000s, when neoliberalism gallivanted around the world, exploiting labour, sucking up resources, and generally sowing economic chaos, including in Russia whose economy was “privatised” by WEF headliners and darlings of the global ESG fan club, such as former US Treasury secretary Larry Summers. Out of the ashes of neoliberalism’s “naughty Noughties” came a new impetus for capitalism to clean up its act.

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But the core question swirling around ESG is who, exactly, is supposed to do the scrubbing? The “Who Cares Wins” report was published in 2004, just months after the “Oil-For-Food” scandal struck the UN, which saw billions in humanitarian funding to Iraq siphoned off, using the UN as the (very much reusable) financial straw. The scandal was so gargantuan it drew in the UN Secretary General, founder of the UN Global Compact, the founding bureaucracy of the ESG movement. On the social front, the UN also saw horrific allegations that some of its peacekeepers were running child sex and sex trafficking rings in the very places they were supposed to protect.

In this sense, ESG might appear to be more of a feint; public relations wrought to its utmost. But even when not tied to reputation-tainting financial scandal, it’s precisely the involvement of supra-democratic global organisations such as the UN and WEF — which are accountable to no electoral constituency — that puts people on edge. For those who don’t get to spend $250,000 on a five-day-long conference, ESG can seem like a network of interlocking policies that are never put to a democratic vote.

And the corporate and governmental advocates of ESG appear to be optimising it to startling effect. Much the same way that organised global power was able to sidestep Apartheid South Africa’s electorate by degrading the country through economic might until the government became untenable, the same international elite is learning to do the same on the level of the individual. Thus, when Canada’s truckers protested in response to vaccine mandates, it didn’t take legal action to break up the protest, but concerted economic action that simply made the lives of the truckers untenable.

While the trucker protests seemed to align on the axis of nationalism vs globalism, the response — including shutting down some of their bank accounts — was a play from the ESG handbook. As the issue of vaccine mandates arose in the US, the gaze of enforcement turned from government to corporate actors. Michael Peregrine, a corporate lawyer who focuses on governance wrote in Forbes that: “if the government, including state and local leadership, is unable or unwilling to adopt such measures [as vaccine mandates], the burden may fall on private enterprise to step in, as a matter of social responsibility.”

While there is a heavy critique of market capitalism associated with ESG, there is also a faint echo of its core tenet: that capital should reign supreme. The difference is that while for neoliberalism, capital was the ends to achieve at the cost of (almost) any means, for ESG, capital is the means that’s justified by a moralistic end. In this sense, it’s the later term of the moniker, “governance”, that is the most salient. In the ESG setting, governance is about how companies are run. The notion here is simple: Enron — an American energy company that practiced only a thinly-veiled cronyism as it committed fraud and ultimately failed — is the definition of bad; BlackRock — driving profit as it pledges to invest only in causes accredited by ESG — is good.

Such a Manichaean division, however, obscures the fact that, however exquisite the window dressing, corporations cannot play the role of ethicist, priest or prophet, and the more they try the more we risk corrupting those essential roles. Not just that, but it also calls into question the judgment of companies entrusted with a fiduciary responsibility to their stakeholders, including employees. “The contradictions and apparent hypocrisy of BlackRock’s actions have… politicised the ESG debate,” wrote Bluebell Capital Partners, a BlackRock activist investor, in a scathing letter. “The reputational damage of being dragged into this politically charged debate, in our view, is very significant because it calls into question the independence of BlackRock as an asset manager.” Bluebell noted that despite its rhetorical largesse, BlackRock still makes lots of money from fossil fuels, raising legitimate questions about the “G”, governance, at work in the world’s most vocal corporate supporter of ESG.

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On a global scale, the term speaks much more to what many feel ESG has as its true objective. As the WEF helpfully puts it: “Global governance is a means to manage issues that cut across national borders — whether it is a war, a pandemic, a financial crisis, climate change, or a geo-economic dispute.” In this sense, ESG has rapidly filled the void left by the death of globalisation. If the latter was an imperative to spread capitalism laterally around the world, ESG can be seen as an effort to vertically consolidate the power accumulated by globalism, which is now available — for a price, that is — to weigh in on our most pressing ethical, moral, and epistemological concerns. It’s capitalism not in your life, but as your life: Ask not what your global governance movement can do for you, but what you can do for your global governance movement.

There is little doubt that ESG is a tool of the elite. It’s nominally aimed at constraining the excesses of globalised capitalism, but in effect it’s just as much a means of entrenching those excesses, codifying them in a moralistic power structure. After all, who gets to decide what makes for good environment, social and governance practices?

What’s certain is that ESG is here to stay. At Davos this year, perhaps the second-most discussed subject was the great wealth transfer taking place around the world — that is, money moving from the previous generation of families whose slogan was “preserve the capital” to the current generation of the ultra-wealthy whose priority is “preserve the planet”. For this new generation of wealth, as well as for the decision-makers whose careers and policies they fund, and the activists whose messages they carry, ESG is not a passing trend but very much the moral engine driving the rise of a new approach to power and economics. What it means for the rest of us, however, is decidedly less certain.