ESG And Stakeholder Capitalism: A Necessary Deconstruction

Authored by Rupert Darwall via RealClearEnergy,

The Following is Book Reviews of:

The Case for Shareholder Capitalism: How the Pursuit of Profit Benefits All, by R. David McLean (Cato Institute, 2023)

The Race to Zero: How ESG Investing Will Crater the Global Financial System, by Paul H. Tice (Encounter Books, 2024)

May Contain Lies: How Stories, Statistics, and Studies Exploit Our Biases—and What We Can Do About It, by Alex Edmans (Penguin Random House, 2024)

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“I’m not going to use the word ‘ESG’ because it’s been misused by the far left and the far right,” Larry Fink, chairman and chief executive of BlackRock, declared a year ago. The far left, Fink complained, wanted BlackRock to use other people’s money to decarbonize the economy. As for what Fink presumably regards as the “far right,” BlackRock had lost $4 billion in mandates as a result of the political debate on environmental, social, and governance (ESG) investing, which he called “90% misinformation.”

The chief executive of the world’s largest fund manager was speaking at the Aspen Ideas Festival to fellow billionaire David Rubenstein, co-chairman of the Carlyle Group, a private equity firm. At one point, Fink confessed to being ashamed of being part of the public conversation on ESG brought on by the annual letters that he writes to CEOs of BlackRock’s investee companies. “When I write these letters, it was never meant to be a political statement,” Fink told Rubenstein. “They were written to identify long-term issues.”

Moments later, Fink backtracked. “I write about stakeholder capitalism, and I’m a big believer that you have to focus on all of your stakeholders,” Fink said. “So there’s nothing to be ashamed about. I just don’t use the word ‘ESG’ anymore.” Confused? You’re meant to be. BlackRock has been put on the defensive by red-state blowback to the anti-fossil-fuel positions adopted by BlackRock in its embrace of stakeholder capitalism and ESG. The debate on stakeholder capitalism and ESG is too important to be left with BlackRock and its CEO’s less than candid, but nonetheless revealing, attempt to find a way out of BlackRock’s self-inflicted ESG difficulties.

That’s why the three books reviewed here are so important. Taken together, they constitute a comprehensive refutation of ESG and stakeholder capitalism. In The Case for Shareholder Capitalism, R. David McLean takes the argument back to first principles—indeed, back some 320,000 years and archaeological evidence that some of our earliest African ancestors engaged in trade. Moving to Europe, Homo sapiens outcompeted physically stronger Neanderthals because we traded and they did not. “Why would trading help us survive? Trade enables specialization,” McLean writes. Trade also enabled the formation of towns and cities, i.e., civilization.

People trade with other people only when both sides gain. This axiom of human behavior applies to shareholder capitalism: a corporation is a legal entity through which customers, suppliers, and employees trade with the business’s shareholders. “You cannot expect businesses to keep trading with you unless the trading also makes the businesses’ owners better off,” McLean writes. “Profits reflect the business owner’s gain from trading.”

Profit—the economic value accruing to shareholders—also indicates whether a business makes an economic contribution to society. When a mature firm or product is chronically loss-making, “it likely signals that the resources it is using could be put to better use elsewhere.” It makes society, as well as shareholders, poorer because it consumes resources that could have gone to more valuable use elsewhere.

McLean’s reasoning leads to two powerful insights. The first involves what he calls the “stakeholder fallacy,” which says that shareholders should be put on an equal footing with other stakeholders: “This overlooks the fact that they already are on an equal footing. If a customer or an employee in a capitalist economy doesn’t find it beneficial to transact with a firm, then she isn’t required to do so. By the same token, if a transaction doesn’t benefit the firm’s shareholders, then the firm shouldn’t engage in the transaction. That is all shareholder capitalism requires.”

This links to the second insight. When a manager spends the corporation’s money on things that cannot reasonably be expected to create shareholder value, the manager is expropriating the corporation’s assets. Either corporate spending is undertaken with the intention of increasing shareholder value, or it expropriates the firm’s resources. “There is no third category.” Whether spending in the second category is labeled “socially responsible,” or to improve an ESG rating, is entirely subjective, McLean argues: “Labels reflect what the labelers like or dislike. That is all. They have no higher meaning. Labeling an expropriation ‘socially responsible’ does not change the fact that it is an expropriation.”

McLean is a professor of finance at Georgetown University. His writing has the virtue of bringing crystalline brilliance to a subject distorted by willful obfuscation and misleading claims. Paul H. Tice, author of The Race to Zero, spent 40 years on Wall Street, including spells at J. P. Morgan, Lehman Brothers, and BlackRock. Tice’s practitioner experience and the granularity of the evidence that he presents make for a perfect complement to McLean’s more theoretical treatment.

Like McLean, Tice is unsparing in his criticism. ESG, he writes, is the latest fraud being perpetrated on the financial markets, and sustainable investment is a scam that aims to determine the allocation of capital in the economy: “[I]t is socialism disguised as a new form of capitalism.” As a former Wall Streeter, Tice follows in the footsteps of Terrence Keeley and his pathbreaking 2022 book Sustainable: Moving Beyond ESG to Impact Investing, for which Keeley sacrificed his senior role at BlackRock. Like Keeley, Tice advocates segregating ESG funds, or impact funds, as Keeley calls them, and takes the case against ESG several stages further.

Tice writes of how Wall Street bosses embraced ESG as a path back to social acceptability after the financial crisis. Despite empirical studies demonstrating a tenuous link, at best, between ESG factors and corporate performance, Wall Street’s analytical defenses were dulled by the Fed-induced trance of near-zero interest rates. Tice contrasts the objectivity and reproducibility of credit ratings with the subjectivity and non-comparability of ESG ratings, as different ESG raters have their own methodologies delivering vastly different results on the same company. According to Michael Jantzi, founder of ESG rater Sustainalytics (now owned by Morningstar), the diversity of ESG ratings is a sign of a healthy market. This is like saying that schizophrenia and multiple personality disorder are “signs of a healthy mind,” Tice comments.

ESG is fundamentally about getting capital providers (debt and equity) to use their financial leverage and institutional power to frog-march the corporate sector into the front line of the war against climate change. As Tice notes, apart from climate change, ESG is “just a ragtag collection of liberal policy wants” sponsored by the United Nations—diversity, union power, gender pay equality, executive compensation, and “fair” corporate taxes. The UN attempts to justify the prioritization of climate change over the other 16 of its sustainable development goals (the first of which is ending world poverty), on the spurious grounds that tackling climate change drives attainment of all the rest. In the world according to the UN, there are no costs or trade-offs when it comes to cutting greenhouse gas emissions.

When companies set net zero targets, they expropriate value from their shareholders. Where does this shareholder wealth go? The recent scandal at Science Based Targets initiative (SBTi), which companies use to validate corporate net zero targets, illustrates the truth of McLean’s proposition on shareholder expropriation. Under pressure from John Kerry and lubricated by a large donation from the Bezos Earth Fund, SBTi decided to support the use of carbon credits to finance the energy transition in the Global South. Thus, net zero targets are a non-legislated tax on shareholders to fund the goals of the Paris climate agreement. This was too much for many of SBTi’s staff and advisers, one of whom denounced carbon credits as “scientifically, socially and from a climate perspective a hoax.”

The first step in getting companies to set decarbonization targets is forcing them to report their greenhouse gas emissions. Three years ago, Follow This, a Dutch nonprofit—more accurately, an anti-profit—tabled a shareholder resolution that would require Chevron to reduce its Scope 3 emissions, defined as those emitted across the company’s entire value chain. As McLean writes, “Chevron is an oil company. It can reduce its customers’ CO2 emissions only by getting its customers to use less oil. The purpose of this resolution, therefore, was to get Chevron to destroy itself.”

A majority of Chevron’s shareholders voted for the resolution, including the Big Three index providers: BlackRock, State Street, and Vanguard. The Chevron resolution is a clear example of investment managers using other people’s money to destroy the value of their investments. On Larry Fink’s own definition, this puts BlackRock and the other two index providers on the far left of American politics.

Shareholder capitalism depends on a chain of principal–agent relationships that runs from savers, investors, and pension plan beneficiaries through investment managers to corporate boards and CEOs. The first-round principal–agent relationship is generally governed by the legal duties that investment managers, as fiduciaries, owe their clients because, as Fink puts it, they’re managing other people’s money and shouldn’t pursue other objectives. ESG advocates try to square the circle by claiming that investing according to ESG precepts boosts—or, at minimum, does not sacrifice—investor returns (“doing well by doing good”). This won’t wash. McLean quotes Cliff Asness, cofounder and chief investment officer of AQR Capital Management, who points out that if one investor mandates an investment to maximize return for the risk taken, and a second says to do that, subject to the following constraints, “it is simply false and irresponsible for the asset manager to assert that the second investor should expect to do as well as the first, except in the case where those constraints are non-binding (and therefore not relevant).”

Evidence that advocates of ESG investing don’t believe their own arguments for ESG boosting risk-adjusted returns is shown by their campaign to destroy fiduciary duty as a binding constraint on investment managers. Tice is superb on this, writing that rules on the duties of fiduciaries are being rewritten to “not just allow but require an ESG approach by fund managers.” Thus the UN-sponsored Principles for Responsible Investment (PRI) states that fiduciary duty exists to ensure that those managing other people’s money act in the interests of beneficiaries—the omission of “sole” pointing to PRI’s sleight of hand, which comes next—requiring “investors to incorporate all value drivers, including environmental, social, and governance (ESG) factors, in investment decision making.”

Tice charts how PRI, together with its sibling the United Nations Environment Programme Finance Initiative (UNEP FI), has become increasingly prescriptive. In 2015, PRI and UNEP FI published Fiduciary Duty in the 21st Century (foreword by Al Gore and his investment partner David Blood), with the intent of eviscerating fiduciary duty as a constraint on investment managers by, as Tice puts it, requiring fiduciaries to “consider the long-term interests of their beneficiaries, both financial and nonfinancial, whether known to them or not.” With its detailed demands addressed to individual financial regulators around the world to write its proposals into law and regulation, PRI’s Fiduciary Duty in the 21st Century is a lobbying manual to end fiduciary duty in the 21st century.

PRI’s 5,336 signatories include BlackRock, which signed on October 7, 2008, State Street (May 2012), and Vanguard (November 2014). BlackRock states that it is committed to supporting PRI’s principles “where consistent with our fiduciary duties.” This is thoroughly disingenuous, as PRI continues its campaign to weaken, and ultimately destroy, the fiduciary duties that BlackRock professes to maintain. Fink’s protestations that BlackRock does not seek to play politics with other people’s money have little credibility for as long as BlackRock remains a PRI signatory.

PRI has conquered Europe and the UK, which together account for about 75% of the 868 pro-ESG regulations tracked by PRI. In Britain, shareholder capitalism perished under a nominally Conservative government. At the COP26 Glasgow climate conference in 2021, Rishi Sunak as Chancellor of the Exchequer spoke of a $130 trillion wall of capital—the amount of other people’s money managed by the members of the Glasgow Financial Alliance for Net Zero—to be deployed to finance the net zero transition. Sunak went on to say that the entire global financial system needed to be rewired for net zero. “Investors need to have as much clarity and confidence in the climate impact of their investments as they do in the traditional financial metrics of profit and loss,” Sunak told the COP. As a result, the UK is the first country in the world to have incorporated the framework drawn up by Michael Bloomberg’s Task Force on Climate-Related Financial Disclosures into its disclosure requirements for listed companies and large asset managers.

Britain formally left the EU in January 2020. In practical terms, it remains fully aligned with the EU on ESG and sustainability. Eight months after Brexit, the City minister, John Glen, told an ESG conference that Britain would, at the very least, match the EU’s Sustainable Finance Action Plan. “We are working hard to support the sustainability and responsible investing agenda,” Glen said. These were not empty words. That year, the Financial Reporting Council (FRC), the regulator overseeing corporate governance, reporting, and auditing, issued a revision of its investment managers’ stewardship code.

Tice observes that the revised code has the PRI’s fingerprints all over it. All 12 of the FRC’s “stewardship” (a word that has been twisted to mean the opposite of what it should) principles embed a sustainable approach to investing, requiring investors to identify and respond to supposed systemic risks, including climate change, and to integrate ESG and climate change into their investment processes. UK-listed companies operating mainly in the UK are required to produce net zero transition plans that are to be vetted by a Transition Plan Taskforce, cochaired by the CEO of one of Britain’s largest insurers and a Treasury minister.

While Britain killed off shareholder capitalism through regulatory fiat, minimal legislative change, and no public debate, at least the EU’s effort involved legislative change and due consideration by the European Parliament. Under the 2020 Taxonomy Regulation, large publicly listed companies and all financial-market participants must report the proportion of their activities that meet the standards of environmental sustainability set out in the regulation and further the goals of the European Green Deal and those that do not. The 2022 Corporate Sustainability Reporting Directive requires, among other things, sustainability to be embedded into companies’ long-term strategic planning. The Sustainable Finance Disclosure Regulation of the same year penetrates deep into how investment managers should consider and disclose sustainability risks and creates three classes of investment funds: Article 6 for non-ESG funds; Article 8—funds integrating ESG and sustainability; and Article 9 funds—those with sustainable investment as their core objective.

The sustainability regimes adopted by Britain and the EU are more than a license for shareholder expropriation; they are instructions for systematic shareholder expropriation. It shows that the “S” in ESG really stands for socialization of people’s savings, to be deployed to meet governmental objectives denoted by “E,” principally decarbonization, thereby exposing “G,” notionally about protecting shareholders, as a sham designed to con institutional shareholders into wholesale adoption of ESG. However, neither Britain nor the EU took on board the adverse macroeconomic consequences of transitioning from shareholder to stakeholder capitalism. Asness’s logic shows why savings earn a lower return under ESG. Lower returns require a higher quantum of savings to generate the same future income stream. Having to save more means lower consumption and living standards today and in the future.

Asness’s logic on the outperformance of the unconstrained versus the constrained investor also applies to economies. An economy constrained by a net zero mandate has fewer choices than an unconstrained one; in particular, it is precluded from using the most efficient sources of energy. Given the high transitional costs of net zero, it is condemned to perform worse than it would without the net zero constraint. (For this reason, the UN’s claim that net zero promotes achievement of other sustainable development goals, including poverty eradication, is not just illogical; it is immoral.) By directing capital into less productive assets, the economy produces less. Lower returns on productive assets imply lower stock-market valuations, and reduced returns on new investment cascade through the economy into weaker economic growth.

Empirical data on Britain’s efforts to decarbonize power generation with heavy investment in wind and solar capacity bear this out. In my 2023 RealClearFoundation report “The Folly of Climate Leadership: Net Zero and Britain’s Disastrous Energy Policies,” I show that between 2009 and 2020, a 15.5% increase in nameplate electrical generating capacity produced 17.1% less electricity, caused by a 28.3% decline in output per unit of generating capacity over those 11 years.

The negative microeconomic impacts of the transition from shareholder to stakeholder capitalism aggregating into anemic macroeconomic performance bring to mind Frédéric Bastiat’s warning in That Which Is Seen, and That Which Is Not Seen: “It often happens, that the sweeter the first fruit of a habit is, the more bitter are the consequences.” Conservative ministers appear perplexed that they adopt antigrowth policies like net zero and mandatory ESG and then find themselves presiding over an ex-growth economy and cruising towards a catastrophic defeat at the general election on July 4.

Although shareholder capitalism has come under sustained attack from the Biden administration, so far, the US has escaped the fate of Britain and Europe. The Department of Labor’s 2022 ERISA “Prudence and Loyalty” rule attempts to force pension fiduciaries to incorporate ESG factors into investment decision-making. The SEC’s recently finalized climate disclosure rule aims to inculcate climate-consciousness into corporate decision-making and requires companies to make standardized emissions disclosures, so that climate activists can compare and then coerce them into adopting costly decarbonization targets, notwithstanding the fact that, regarding climate disclosures and materiality, the SEC had fulfilled its legislative mandate with its February 2010 guidance on climate disclosures.

Litigation fears likely led the SEC to drop mandatory Scope 3 emissions disclosures and the withdrawal of some heavyweight financial institutions from net zero investment groups likely reflects fear of potential suits alleging infringement of antitrust law. However, the most effective opposition to ESG has been at the state level, where red states have pushed back against ESG by legislative and legal action as well as by simply taking their business elsewhere.

This resistance has lead the executive branch, in league with its allies on Wall Street, to greater reliance on informal or soft power to bring about the transition from shareholder to stakeholder capitalism: create the impression of the inevitable triumph of net zero; harness market momentum from the Big Three index providers and massive blue-state pension funds to provoke investor herding; and, with the help of an ideologically aligned media, foster a pro–net zero climate of opinion, in which dissenting opinions and contrary narratives are not tolerated—in short, the weaponization of information.

It is on this battlefield that the third in the trio of books reviewed here is so valuable. Rather than directly confronting ESG and stakeholder capitalism head-on, in May Contain Lies: How Stories, Statistics, and Studies Exploit Our Biases—and What We Can Do About It, Alex Edmans provides the tools and, perhaps more importantly, the skeptical mind-set to unpick common ESG claims. Edmans, a professor of finance at London Business School, recently wrote two important papers on ESG: “The End of ESG” (2022); and “Applying Economics—Not Gut Feel—to ESG” (2023), which overturn conventional thinking on ten key ESG issues.

Edmans reviewed an early draft of McLean’s book. “What better person to get feedback from?” McLean asks. Yet they are on different sides when it comes to sustainability. All businesses in a capitalist economy are subject to Schumpeter’s perennial gale of creative destruction: “We can have sustainable economic growth, but if we do, then nothing is sustainable at the level of the individual business,” McLean writes. On the other hand, Edmans is a self-described sustainability advocate. Far from blinding him to problems arising out of concept of sustainability, Edmans says that he seeks out well-informed critiques and views disagreement as valuable.

Twenty years of research have taught Edmans the lesson of rigorously testing claims. May Contain Lies is elegantly structured around an ascent up the ladder of “misinference,” an ideologically neutral term that does not give off the stench of censorship that often accompanies usage of misinformation and, especially, disinformation:

A statement is not fact.
A fact is not data.
Data are not evidence.
Evidence is not proof.

When it comes to claims about ESG, Edmans provides examples that suggest that the book’s title is underdone. It’s a pretty safe bet that a pro-ESG statement will contain lies, a carve-out being made for best employee-rated companies, which Edmans’s research shows are associated with stronger stock-market performance. Edmans relates that a House of Commons committee asserted that an academic paper found that high wage disparities damage corporate performance, despite Edmans telling the clerk to the committee that the conclusion had been from a preprint that, post–peer review, came to the opposite conclusion.

Then there is the case of the “world-famous” investor who invites Edmans to partner in a new fund focused on pro-gender-diversity companies—if he could come up with supportive research. Edmans and a colleague crunch 24 relevant measures; 22 are negatively associated with company performance; one has a statistically insignificant relationship, leaving only one (fewer media reports on diversity controversies are linked to stronger corporate performance). Six months later, the investor launches a diversity fund backed by other research claiming that female-friendly firms perform better. Data mining, Edmans says. Even by Wall Street standards, pushing ESG investment products demands unusual levels of cynicism.

Edmans’s guiding star is falsifiability: “The only way to support your theory is to try to disprove it…. [F]inding out what’s wrong is the only way to find out what’s right.” Missing, though, is the bigger picture in which opinion diversity is suppressed, and attempts at falsification, or even modification, of dominant consensus narratives are dismissed as actions of bad actors.

Edmans rightly stresses the necessity of having a scientific culture: “an environment where people put out bold and innovative ideas, actively seek dissenting opinions.” On climate change, such a culture does not exist in science or finance. In 2022, Stuart Kirk, head of sustainability at HSBC, gave a presentation arguing that investors did not need to worry about climate change. “The speech did an important service by providing a contrasting opinion,” Edmans writes, while acknowledging that performing this valuable service cost Kirk his job. It is left to Tice to draw the conclusion that Kirk’s termination shows that no one on Wall Street is free to speak out against sustainability “for fear of being personally attacked and likely fired or calling down the ESG gods on their firm.”

Edmans uncritically cites the famous 97% scientific consensus on climate change, which, Tice shows, was originally derived from a sift of climate research papers, two-thirds of which expressed no opinion on anthropogenic climate change. Sir David Attenborough’s warning that climate change is our greatest threat—greater than pandemics and nuclear war—is “not clearly incorrect,” Edmans says. Neither is it obviously correct; yet Edmans offers no means of choosing between these two mutually exclusive speculations about the future. Fact-checking, which Edmans suggests elsewhere, won’t do. Facts exist only in the past. There is no such thing as a future “fact,” a word derived from the Latin factum, meaning “thing done,” the past participle of the verb facere, “to do.”

One way of assessing the credibility of statements about the future is to examine the track record of past predictions against what actually happened. In 1953, Sir Richard Doll, one of the pioneering epidemiologists who uncovered the link between tobacco smoking and lung cancer, predicted that in 1973 there would be 25,000 lung cancer deaths in Britain. In fact, there were 26,000. The science of smoking and lung cancer had passed a sharp predictive test with flying colors.

It is reasonable to put greater weight on the science behind a forecast that under-predicts a large rise and to put less reliance on the science that over-predicts. Such is the case with climate science. A year after the 1988 Toronto climate change conference, which declared the danger of climate change second only to a global nuclear war, a Commonwealth group of climate experts produced a 140-page report in which they made a supposedly conservative prediction of global temperature increase of 0.24°C–0.48°C per decade. This compares with an average rise of 0.21°C per decade derived from the Met Office’s global temperature data set from 1989 to 2023 (five-year trailing average) and a linear warming trend from January 1979 to March 2024 in the satellite temperature record of 0.15°C per decade, implying that the Commonwealth experts’ forecast ran 1.7–2.4 times hotter than observations.

No reasonable person could claim that in the 36 years since the Toronto climate conference, humanity has experienced anything close to the death and destruction of a global nuclear war. As Tice points out, the number of disaster-related deaths globally has dropped by a factor of ten over the past 100 years. In terms of lives lost, no recent natural disaster has been as devastating as the central China flood of 1931, in which as many as 2 million people lost their lives and affected the lives of 52 million more. Nonetheless, 36 years after the Toronto conference, climate change is portrayed as a catastrophe of existential proportions, one still lurking over the horizon, despite a near-contemporaneous temperature forecast running far ahead of observed warming and even upgraded to being more destructive than nuclear war.

It’s not only temperature forecasts that were overheated. Six years ago, Manhattan Contrarian Francis Menton posted a catalog of failed climate tipping-point predictions. In 1988, the year of his famous congressional testimony, NASA climate scientist James Hansen told a journalist that Manhattan’s West Side Highway would be under water in either 20 years or 40 years (the record is unclear). In 2018, ten years after or ten years before the expiry of Hansen’s prediction, Menton went down the highway. To no one’s surprise, except possibly Hansen’s, “the water didn’t appear any closer to swamping it than it was back in 1988.”

Despite the impacts of climate change being far less severe than initially believed nearly four decades ago, climate change has to be catastrophic to justify the profound (and unachievable) economic and societal transformations demanded by net zero. Were people to start believing that its effects are mild or even benign, climate change’s potency to move policy mountains would evaporate. For this reason, querying the catastrophist narrative is not permitted. It’s here that Edmans’s belief in the importance of opinion diversity and actively seeking dissenting views runs into the over-heated reality of today’s world.

As a newspaper reader, Edmans subscribes to both the conservative Daily Telegraph and the left-wing Guardian. Twinning opposing op-eds is the formula behind RealClearPolitics (RCP) that publisher David DesRosiers sees as an antidote to polarization and hyper-partisanship. This led to RCP’s blacklisting by the Global Disinformation Index (GDI), a British NGO, which last year labeled RCP a high-risk news site for disinformation (the author is a senior fellow of a foundation that works with RCP).

GDI describes its role as disrupting the business models of news and opinion sites that it deems disseminators of disinformation. Because climate catastrophe is a non-fact that belongs to the category of an unverifiable speculation about the future, fact-checking climate change quickly morphs into opinion censorship. Thus, GDI’s definition of disinformation encompasses what it calls “adversarial narratives,” i.e., opinions—whether or not supported by scientifically sound analysis—that it disagrees with.

The weaponization of information was discussed by Dr. Scott Atlas, who served as President Trump’s scientific adviser on Covid for part of 2020, in a recent interview with PragerU’s Marissa Streit. What he has to say about censorship has a direct read-across to climate. Censorship worked, Atlas told Streit. Dissenters were demonized, and a cancel culture blocked people from speaking and blocked people from hearing. “The solution to misinformation is more information. There is no one who should be trusted with the power to determine truth versus not.”

Atlas also spoke of the funding webs that distort academic research in a pattern similar to that in climate science. The federal government, in the form of the National Institutes of Health (NIH), is the main funder of medical science. A cabal of powerful, politically connected people are chairs of departments in medical schools and also reviewers or editors-in-chief of medical publications. There’s an added twist: in response to FOIA requests, OpenTheBooks found that individual NIH employees received $325 million from the pharmaceutical industry over an 11-year period, which looks very much like legalized corruption.

Atlas and Edmans offer similar advice on what Atlas calls a “crisis of trust,”Atlas telling Streit:

“We now know the responsibility is on us as individuals in a free society to know what we’re talking about; to go investigate the source and the data because the era of trusting people solely on the basis of their credentials is over … They’re incompetent. But also, they’re not to be trusted. They manipulated the public instead of g[iving] us information and let[ting] us decide.”

Unsurprisingly, GDI holds the opposite view. In a February 2022 interview, Daniel Rogers, GDI’s cofounder and executive director, speaks of the societal function of information that requires deference to politically approved science:

“People have been convinced through the online disinformation ecosystem not to get vaccinated, becoming eventually sick and causing more harm. In that sense, while the number of websites acting as purveyors of disinformation isn’t that big, it’s an enormous problem in terms of impact, to the point that it poses a threat to democracy…. This is a true cultural malignancy.”

Rogers’s is an authoritarian, top-down model of information dissemination and control. Yet, almost in the same breath, Rogers expresses alarm that “around the world, authoritarian regimes are increasingly coming into power, which I see as a direct result of the collective information environment poisoned by these toxic business models.” He might as well have been talking about GDI as a toxic business model. In a crisis of trust, it is organizations such as his that act as malignant nodes in the spread of distrust.

Ultimately, the crisis of trust is a crisis of civilization. In May Contain Lies, Edmans recounts an experiment in which subjects are invited to drink apple juice from a bedpan that they know is perfectly clean; 72% of them flatly refuse. This is rational behavior. Heuristics, or rules of thumb, obviate thinking and enable us to live fuller lives. And, as McLean shows, trade is a supremely human activity. Trade enables specialization, and specialization enables the development of knowledge expertise. We all lose when expertise is discredited by being politicized and harnessed to a public policy agenda.

A necessary condition for restoring trust in expertise is free expression by experts and nonexperts alike free of intimidation. This condition was absent during the pandemic and continues to this day. It has been absent for many years in discussions on climate change, as both Stuart Kirk and climate scientist Judith Curry, drummed out of her position at Georgia Tech, can testify.

Despite the weight of the forces arrayed against them and the power of climate catastrophism to silence dissent, opponents of ESG and stakeholder capitalism have succeeded in checking its advance. True, the battle is lost in the EU and, for the time being, in Britain, but the fact that the CEO of the world’s largest investment manager refrains from using the word “ESG” says something, as does the withdrawal of a number of large financial institutions from climate action groups. The two Republican SEC commissioners remind its chair of the limits of the authority delegated to it by Congress (Hester Peirce: “We are Not the Securities and Environment Commission – At Least Not Yet”) – and Scope 3 emissions fall away from the SEC climate disclosure rule. ExxonMobil has filed a suit against Follow This, the climate activist that BlackRock, Vanguard, and State Street had supported against Chevron management, and publicly states that it does not care about growing shareholder value.

Financial markets speak in prices. Tice points out that in 2022, the S&P 500 Energy subindex rose by 59.05%, while the broader equity market sank by 19.44%. As McLean demonstrates, if there is any free lunch in investment, it is diversification by lowering risk but not returns. By restricting their universe of investment possibilities, ESG investors increase risk without improving their chances of return. Investors have noticed. The battle to save shareholder capitalism can be won. These three books help bring that victory closer.

My advice? Read them.

Rupert Darwall is a senior fellow of the RealClearFoundation and author of  The Folly of Climate Leadership: Net Zero and Britain’s Disastrous Energy Policies.