When it comes to the world of environmental, social, and governance (ESG) investing, we’ve become used to Panglossian headlines about how every new development only strengthens the case for groups such as Michael Bloomberg’s Sustainability Accounting Standards Board and Klaus Schwab’s World Economic Forum. Institutional messaging is suffused with assumptions that corporate regulation will inevitably march leftward. But recent developments in energy markets and outlook — driven by the very policies pushed by ESG advocates — may signal a coming crack-up among the responsible-investing crowd.
There’s no shinier jewel in the woke corporate crown than the fight against climate change, and the success of ESG frameworks around the world are likely to be judged by how much they move the needle on related policy. The Securities and Exchange Commission, for example, is expected propose rules on climate-change disclosure for public companies soon. That will almost certainly be only the first salvo, however, in a planned fusillade of rules meant to erect a “comprehensive ESG framework” covering everything from racial justice and fair trade to “inclusive” health-care benefits and sex-based quotas for board membership. Climate, being the alleged existential emergency, will serve as the dependable packhorse that will draw the rest of the corporatist wagon behind it.
But that seemingly healthy beast could collapse entirely if anti–fossil-fuel policies cause prices to skyrocket and lights to go out this winter. As NR’s Andrew Stuttaford has been tirelessly documenting in recent editions of the Capital Letter, the current energy crisis — a global archipelago with especially notable peaks in Europe and China — is coming at governments faster than they seem to be capable of coping with. This is especially true in places where the fashionable but nonsensical conventional wisdom has held that modern industrial economies can be fueled by intermittent breezes and sunshine alone. Phasing out coal is one thing, but the ambitions of the climate Left increasingly run — à la AOC’s Green New Deal — to eliminating all coal, natural gas, and nuclear. In other words, almost all of what currently powers the United States and the rest of the developed world.
It is not a new discovery that solar, wind, and geothermal are not adequate replacements for most of the world’s current energy mix. Energy and climate realists such as Mark Mills, Michael Shellenberger, Bjorn Lomborg, and Alex Epstein have been warning us for years that we’re headed for a dark, cold cliff if we do not recalibrate. Their accumulated research and advocacy has never been more relevant. Let’s briefly consider each in turn.
Mills, of the Manhattan Institute, wrote quite correctly in 2019 that the “new energy economy” promised by climate true believers is based not so much on optimism as pure magical thinking. Prices for renewable energy and battery storage have certainly declined significantly since the 1970s, but they do not come close to the Moore’s Law–level of exponential increases in capacity that would be required to fulfill the green wish of a zero-carbon world.
Shellenberger, founder and president of the NGO “Environmental Progress,” has been passionately attempting to get the attention of his fellow environmentalists with TED talks like “Why Renewables Can’t Save the Planet,” and his 2020 book, Apocalypse Never: Why Environmental Alarmism Hurts Us All. In addition to warning us that renewable capacity simply isn’t capable of meeting modern global energy needs, he has also pointed out, in outlets like Forbes, that the renewable industry itself is highly polluting. And he is not alone. Discovery magazine reported last year that “solar panel disposal practices are far from being environmentally friendly,” in part because “it often costs companies more to recycle a solar panel than to produce a solar panel.” NPR has predicted that when it comes to wind turbines, “the U.S. will have more than 720,000 tons of blade material to dispose of over the next 20 years.” The blades are expensive and difficult to transport and are not recyclable.
Lomborg started shaking up the environmental debate all the way back in 2001 when Cambridge University Press published his counterblast to the prevailing narrative of ecological decline, The Skeptical Environmentalist: Measuring the Real State of the World. Since then he has tirelessly documented the reality that most environmental trends are improving but that many popular policy proposals would actually make things worse, especially for those living in energy-poor developing countries. Writing last month in the Wall Street Journal — ahead of the U.N.’s next massive climate confab, COP-26, in Glasgow — he summarized worries about increasing temperatures: “The best way to protect people from heat or cold is access to plentiful, cheap energy, though that often means fossil fuels.”
Alex Epstein of the Center for Industrial Progress may be the most combative of these energy realists, aggressively advocating, as his 2014 book title put it, The Moral Case for Fossil Fuels. Epstein has also trained his sights on the ESG movement and fossil-fuel-divestment campaigns specifically, writing with trademark insistence that “the ESG divestment movement poses as a long-range, financially savvy, and moral movement. In reality it is a short-range, financially ruinous, and deeply immoral movement that perpetuates poverty in the poorest places and threatens the security of the free world.” Epstein has also critiqued business leaders such as Elon Musk for promoting unrealistic predictions about renewable capacity while raking in billions of dollars in taxpayer subsidies.
All of these conflicts will reach a head eventually. Indeed, recent news about skyrocketing natural-gas prices in Europe and coal shortages in China reveal that that day will come sooner rather than later. Perhaps then we will finally see that the widespread approval that we are perpetually assured is backing ESG goals is much like the pioneer description of the Platte River — a mile wide and an inch deep.
According to the Pew Research Center in 2020, two-thirds of Americans think “government should do more on climate.” We should remember, though, that pollsters often find supermajorities in favor of many policies that are presented as a way of solving an important problem, as long as respondents are never asked about their cost. Take, for example, the Green New Deal. Data for Progress found that the progressive climate-change package had a 60 percent approval rating among likely voters. But a survey by my colleagues at the Competitive Enterprise Institute (CEI) found that, when asked about costs, 35 percent of registered voters said they wouldn’t be willing to spend anything to reduce the impacts of climate change. Seventy-five percent were not willing to pay more than $50 a month. A 2020 study by CEI and Power the Future found that Green New Deal would incur costs in excess of $70,000 per household in its first year alone. The percentage of the voting public that would support that burden is essentially zero.
Thus when “climate conscious” policies are offered to corporations as being revenue neutral or even revenue enhancing, they can become quite popular. And when they are presented as “good for business” to voters and individual investors, they remain popular. But if the climate-policy decisions being promoted by the global ESG movement start causing rolling blackouts, lines at the gas pump, and higher consumer prices, the speed with which they will become politically unpopular will cause whiplash among sustainable-finance analysts and activists alike. That interruption of the momentum — along with the prevailing inevitability narrative among businesses — will cause many more people to question whether ESG as a concept is really the “unstoppable train” that many consultants and advocates have made it out to be. Which will give advocates of true corporate purpose — consumer welfare, innovation, and wealth creation — a valuable opportunity to reset the debate.