The week of May 12, 2025: Sustainability & tariffs, transit, labor, the budget, and much, much more.
The week of May 12, 2025: Sustainability & tariffs, transit, labor, the budget, and much, much more.
On the face of it, ESG (the investment “discipline” that scores how companies measure up to various conveniently opaque environmental, social and governance criteria), is on the run, especially on this side of the Atlantic.
Investors pulled a record $8.6bn from sustainable funds in the first quarter of 2025, according to data from Morningstar, with US investors cutting their exposure for the tenth straight quarter in a row.
However, contrary to the impression given by the headlines, ESG is still in the game, albeit more camouflaged than in the past, quite often, as predicted some years back by Aswath Damodaran, a professor of finance at NYU’s Stern School of Business (and no fan of ESG), as “sustainability”:
So, what will the next big thing be? I don’t know for sure, but I am willing to make a guess, since so many ESG experts and advocates have slipped into already using it as an alternative. It is “sustainability“, a word that can mean whatever you want it to mean.
Last November he returned to that topic, reiterating the overlap between sustainability and ESG:
If ESG did not exist, sustainability would have had to invent it, because much of the growth in sustainability as a money-maker has come from its ESG arm. As I see it, ESG took the abstractions of corporate sustainability and converted them into a score, and it was that much maligned scoring mechanism that caused a surge of adoptions both in corporate boardrooms and among the investment community. It is worth noting that both ESG and sustainability draw their rationale from stakeholder wealth maximization, with the core thesis being that businesses should be run for the benefit of all stakeholders, rather than “just” for shareholders.
Stakeholder capitalism is ESG’s symbiont. Both rest on the notion that shareholder primacy — the idea that the primary duty of a company’s management is to its shareholders (its owners, to be old-fashioned about it) — can be jettisoned and replaced with the notion that a company’s management should be working for a number of “stakeholders,” in what amounts to a partial expropriation of the company’s shareholders or, to put it in an old-fashioned way, theft.
Damodaran:
A 2003 paper on corporate sustainability describes it as recognizing that “corporate growth and profitability are important, it also requires the corporation to pursue societal goals, specifically those relating to sustainable development — environmental protection, social justice and equity, and economic development.”
The long game was already underway.
In early May, the Wall Street Journal ran an intriguing and somewhat surprising opinion article by Amy Chan (the chief sustainability officer at the University of California, Berkeley’s Haas School of Business). In it, she related how the idea that President Donald Trump’s “trade war might accelerate environmental progress” had emerged in a meeting she had attended “with senior supply-chain and sustainability executives.”
The fact that there still are “sustainability executives” is a reminder that ESG and stakeholder capitalism are alive and well.
In a section on its site describing the professional education it offers, another university, Massachusetts Institute of Technology, discusses chief sustainability officers (CSOs: the top sustainability executives) and what they do. This is a question that Damodaran argues has yet to be satisfactorily answered. He has, however, created a taxonomy of four types of CSO: Yoda, Jiminy Cricket, public relations genius, and embalmer (to understand what he means by those, you will have to read his article), and there are quite a lot of them:
A PwC survey of 1640 companies in 62 countries, in 2022, found that the number of companies with CSOs tripled in 2021, with about 30% of all companies having someone in that position.
To hazard a guess, there are more now.
MIT has its view of what a CSO should be:
A chief sustainability officer (CSO) oversees the environmental impact of a company or organization. They are the go-to person to assess current impacts and raise future sustainable practices accordingly. Moreover, they must ensure a business is meeting government sustainability standards.
A CSO must be aware of changes in legislation and should lead company policy changes accordingly. They typically report to the CEO and work together with chief financial officers to ensure business finances are properly conducted. A CSO is passionate about the environment and has a genuine interest in climate change.
Seen from a shareholder’s perspective, some of that job description looks uncontroversial. A company needs to be compliant with environmental law and regulation, and to be aware of possible changes in both. And there are good reasons, mainly linked to law and regulation, why it should be aware of its environmental impact, at least in some areas.
But for MIT to state that “a CSO is passionate about the environment and has a genuine interest in climate change” means that that it envisages the role as extending beyond compliance and into a grander mission — take off those glasses, Clark — to save the planet. Societal goals!
MIT:
A chief sustainability officer’s job duties may vary from company to company. The main objective remains the same: ensure the organization is as sustainable as possible… you will need to persuade stakeholders to take risks and make sacrifices to obtain sustainability goals.
Again, this suggests that the job is about much more than ensuring compliance with environmental regulations. And so does the comment that “if you’re passionate about making a change and a cleaner planet,” the “long and challenging process” to become a CSO will be worth it.
In other words, while the job is partly compliance work, it also involves acting as an environmental enforcer and evangelist, a role closer to the priorities of stakeholder capitalism and ESG than any shareholder should want to see.
What had originally caught my eye about Chan’s article was that as a CSO from Berkeley she had seen grounds for hope from the Trump tariffs. It “may sound counterintuitive,” she concedes, as “the Trump administration is no champion of green policies,” but:
[T]he reordering of global trade is forcing companies to rethink supply chains. Many supply-chain leaders are outlining an emerging strategy called “manufacturing in region for region.” This means producing goods in North America for North American consumers, in Europe for Europeans, and so on. That’s good for stability and even better for the planet. According to the Environmental Protection Agency, transportation accounts for roughly 15% of global greenhouse-gas emissions. Fewer transoceanic journeys mean less emissions.
That’s true and given geopolitical tensions and the lessons learned during the pandemic, a strong case can be made for shorter, closer supply chains.
Chan continues:
Second, Mr. Trump’s recent move to end the de minimis tax exemption for low-value imports from China could curb America’s addiction to fast fashion and disposable goods supplied by retailers like Shein and Temu. This would result in fewer impulse buys and less landfill waste. Manufacturers may also respond by producing higher-quality, longer-lasting products. The effect won’t be limited to cheap goods. Higher prices on electronics, appliances and vehicles will encourage consumers to extend the life of what they already own. The greenest car isn’t a new electric vehicle; it’s the one you don’t replace.
A hallmark of environmentalist writing is descriptions of consumers as “addicted” to something of which they (environmentalists) disapprove. Thus America has an “addiction” to the wares sold by Chinese companies Shein and Temu, a word that not only suggests there is something reprehensible about such purchases (something Chan clearly believes) but also that those doing the buying are not really exercising free choice: Spendthrift automata, they cannot resist the temptations on offer. Of course, the a-word is generally used very selectively. There is often talk of Americans’ “addiction” to cars, but rarely (if ever) of Europeans’ “addiction” to trains.
This ties in with the distrust of greens (and many other leftish activists) for advertising. It is regularly portrayed as a dark art designed to so overwhelm potential consumers that they end up buying goods that, in the opinion of censorious activists, they do not really need. The pleasure of the “impulse buy” doesn’t count, it seems, and neither does the satisfaction of buying some clothing that might offer a touch of otherwise unaffordable glamor. Indeed, some degrowthers, almost the hardest line of all the green tribes, would ban or heavily restrict advertising. That this is just another form of censorship is not something that bothers them.
Chan writes that manufacturers may respond to the tariffs by producing “higher quality, longer lasting products.” That will be nice for those who can afford them, not so much for those who cannot. Once again, the shadow of degrowth falls over Chan’s sentences, but her attitude to “overconsumption” is at times not so far removed from that of Treasury Secretary Scott Bessent. “The American dream,” he intoned sternly in March, “is not contingent on cheap baubles from China.” In invoking the American dream, he was, like greens warning of an endangered planet, trying to offer a high-sounding justification for telling consumers that they could not buy what would otherwise be available to them.
Chan then proceeds to discuss America’s unhealthy dependence on Chinese rare earths. The U.S., she argues “can mitigate this vulnerability by investing in domestic rare-earth recycling infrastructure.” That’s not a bad idea, but breaking such a dependency will take mining too, something unmentioned in her article and at which environmentalists have a way of balking.
She concludes:
Environmentalists shouldn’t waste time hoping for a different political landscape. This is a moment for pragmatism. Mr. Trump’s trade policies might do more for the planet than a thousand environmental, social and governance reports. It’s rare for environmental objectives to align with the Trump administration’s strategic interests. We shouldn’t waste the opportunity to capitalize on it.
It is an unexpected argument (and the swipe at ESG was a bonus).
Chan’s previous job was with Apple, where, according to a press release from Berkeley, she had “helped drive key sustainability initiatives across Apple’s supply chain for over a decade.” Now she’s all but left the corporate world, with one key exception. She is also responsible for the direction of Berkeley’s new MBA/Master of Climate Solutions concurrent degree program with Rausser College. Described as a program designed to “empower the next generation of sustainability and climate leaders,” it “prepares students to be change agents and leaders in businesses, nonprofits, and government agencies,” language which, if applied to corporations, again implies something more than “merely” working to enhance shareholder value.
The existence of such courses, whether at MIT or Berkeley/Rausser or elsewhere, proves that the ESG/stakeholder ecosystem is, even if rebranded, alive, well, and, despite its setbacks, set to endure in the private sector as well as the public (where there is an E, there will almost certainly be an S and a G). For the universities, it is an additional product line, made sweeter doubtless by the fact that it is ideologically so congenial.
Damodaran:
Business schools around the world have discovered that sustainability classes not only draw well, and improve their rankings…but are also money makers when constructed as executive classes. NYU, the institution that I teach at, has an executive corporate sustainability course, with certification costing $2,200, but I will quote the Vanderbilt University course description instead, where for a $3,000 price tag, you can get a certificate in corporate sustainability, which is described as ” a holistic approach to conducting business while achieving long-term environmental, social, and economic sustainability.”
The campus ESG/sustainability/whatever mills will keep generating new “change agents” for so long as there are jobs for them to go to. And in the private sector there will be such jobs until enough corporations recommit to their fiduciary obligations and ask how such recruits are contributing to shareholder value. If the answer is unsatisfactory their jobs should be redefined or they should go.
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which is hosted by financier David L. Bahnsen makes use of another medium to deliver Capital Matters’ defense of free markets.
Populism seems to be the driving force of the new right’s economic philosophy. The new right has said that they want to take on “libertarian” economics and “free market orthodoxy.” Others have said that “libertarian economics is the same thing as conservative economics” (i.e., laissez-faire, low tax, low regulation, etc.). David suggests the need of the hour is not just more precise definitions, but a truly robust understanding of conservative economics — one that goes where libertarianism didn’t, and goes where populism simply can’t.
The Capital Matters week that was . . .
Saving
Republicans are expected this month to release the details of President Donald Trump’s “one big, beautiful bill,” which will seek to expand and make permanent Trump’s first-term tax cuts. One popular idea from Senator Ted Cruz (R., Texas) and Representative Diana Harshbarger (R., Tenn.) is to create a tax-free investment account for American families to build wealth on their own terms…
Regulation
The wildfires that devastated Los Angeles tore through the city and county in January; the last of the fires were extinguished at the end of the month. Three and a half months have passed; last month, Los Angeles County launched a website that tracks how many rebuild permits have been issued in Pacific Palisades and Altadena following January’s fires.
As of this morning, the county has issued . . . seven building permits. Seven!
Papal Economics
When I heard that Cardinal Robert Provost had been elected pope, I was among the many pleased to see that he had taken the name “Leo.” Leo XIII, who reigned from 1878 until 1903, was a great pope, not least because of his record 86 encyclicals which, even today, repay careful reading…
Transit
When Marc Molinaro takes up his position as the new federal transit administrator, he will have the opportunity to save taxpayers a quick $5.1 billion. All he has to do is decline to provide federal funding for what a high-profile transit advocate recently dubbed “the worst new transit project in the United States”: the extension of San Francisco’s BART system through downtown San Jose…
Labor
That’s a headline I never expected to write, and I don’t anticipate writing it again, but it seems that the dockworkers’ unions have done some good for once…
Renewables
In the most recent Capital Letter, I have written about the Iberian “greenout,” in all probability a fair description of the recent massive power failure in Spain and Portugal. The immediate cause of the sudden drop in power in Spain that preceded the shutdown may or may not have been caused by the country’s addiction to renewables (although the best guess is that it was). Time will tell, hopefully…
The addiction of large swaths of the Western establishment to their green “transition” has already created dangerous dependencies on China, whether in the electric vehicle supply chain or for components used in renewable energy — components such as power inverters for solar power. These convert the DC current generated by a solar panel into the AC current the grid requires. According to the Department of Energy, they are “one of the most important pieces of equipment in a solar energy system.”
Most are produced in China. But of course. That’s bad enough, and that’s without this bit of news from Reuters…
New Mexico
Matthew Mitchell & Paul Gessing:
New Mexico is in the middle of an oil and gas boom. The state has been an oil and gas producer for decades, but thanks to major shale finds, New Mexico now churns out 2 million barrels of oil every day. This is more than 15 percent of all U.S. production and enough to make it the second-biggest oil producing state in the nation after Texas. You’d think New Mexicans would be riding high these days.
Nothing could be further from the truth.
Tariffs
“The magnitude and speed at which these prices are coming to us is somewhat unprecedented in history.”
That’s how Walmart CFO John David Rainey characterized the effect of Donald Trump’s global trade war on his company’s bottom line — effects that the retailer could not continue to absorb. “It’s a dynamic and fluid environment,” Rainey told the Wall Street Journal. That’s a diplomatic way of stressing how destabilizing Trump’s on-again, off-again tariff regime has been for any business that relies on foreign supply chains. And “the full impact of the trade war on consumers has yet to come,” the Journal warned. Thus, the nation’s largest retailer has had no choice but to raise its prices, with more price hikes for consumers expected to come online soon…
Axios published a story for which the accompanying post on X reads, “Hard data suggests tariff-driven inflation and recession fears may be overblown.” A cavalcade of tariff supporters have touted it to say those who opposed the tariffs were wrong and Trump was right.
A few things worth noting…
Although some real gains have been made in relaxing foreign restrictions on U.S. exports, the administration has made an unforced error in increasing restrictions on U.S. imports — in the face of foreign opposition, no less! Let’s unpack these agreements and consider what they portend for future trade deals…
ESG
Allen Mendenhall & Daniel Sutter:
For all the obituaries written about ESG in the past year, reports of its demise have been greatly exaggerated. At its core, ESG represents a fundamental attempt to redirect business and finance toward social transformation, channeling private capital to advance specific political objectives.
While the ESG label may face growing skepticism, the underlying mission — transforming boardrooms into vehicles for advancing a progressive agenda — remains deeply embedded in America’s institutional power centers. It’s simply evolving into more resilient forms…
Markets
As I wrote in my post from March on my expectations for the effects of tariffs, the intraday changes don’t really matter that much. The worrying thing as far as the stock market is concerned is that for the first extended period of time in many years, European stocks are outperforming U.S. stocks. That signals weakening investor confidence in the future profitability of U.S. companies relative to European ones, the opposite of what Trump should want. U.S. stocks have significantly outperformed European stocks since 2009, so it’s a noteworthy change that things have flipped over the past several months…
The Budget
As James Madison warned, “A public debt is a public curse.”
That’s why I’m glad some House Republicans, including Representative Chip Roy, are pushing back on the so-called “Big Beautiful Bill.” It’s certainly big, but it’s not beautiful.
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