The Case for an Alternative Response to ESG
(or how to navigate your way through perilous territory when the map is useless)
What’s in this Post?
Why ESG Makes No Sense (it’s not what you think)
A Frightening Experience on a Thai Island (with a useless map)
Why ESG Makes No Sense
The size, influence and complexity of the ESG ecosystem have all increased dramatically in the past 2 years. Criticism and skepticism of ESG have skyrocketed too.
The purpose of this post is not to explain the complexity (you already know how mind-boggling it is) nor to try and make sense of ESG ratings (that would be like pushing really, really hard on a string). Instead, I hope to provide a different way of thinking about ESG, particularly as it relates to The Cycle of Civilization.
If you’re not yet familiar with the 7 phases in the 275 year cycle of civilization, it may help to watch this 20min overview first:
The key purpose of this post is to arm you with unquestionable reasons to dump any ESG-related reporting activities (assuming you’re responsible for ESG reporting in your organization). I hope to show you that the map by which we’re navigating these times is well and truly outdated and should be thrown out. I’ll also provide pointers on focussing on what really matters instead.
The Sunflower’s Growth Cycle
To help contextualize why the ESG landscape is littered with contradictory metrics to the point of being useless, let’s turn to Nature. Think back to when you (or your children) planted a sunflower seed. There are three distinctly different phases in a sunflower’s cycle:
The germination phase happens largely unseen and underground.
The rapid growth phase is the most dramatic. Kids excitedly measure and record the height every day.
The flowering and wilting phase is the least exciting. It’s also the most important, because this is when the resulting seeds create potential for new life. The measurement system changes from ‘inches/cms grown’ to ‘number of seeds produced.’
Humanity’s Growth Cycle
Ever since the Industrial Revolution, humanity has enjoyed a similar rapid growth phase. This thrilling, 'irrationally exuberant' growth spurt spans phases 2 (Early Growth), 3 (Prosperity) and 4 (Overshoot) in the Cycle of Civilization (see video above for details).1 Rapid growth requires easy access to masses of energy and financing. Oil provided cheap and accessible energy and credit enabled us to build the present at the expense of the future. Without the two important inputs of oil and credit, there would be no need to engage in discussions around ESG. Stated differently, unless we address energy and credit alternatives simultaneously, any conversation about ESG or addressing the climate is a moot point.
(‘Renewable energy’ at the nation-state level usually presupposes access to limitless financing, which taxpayers ultimately have to foot the bill for.2 It is for this reason that renewable energy coupled with huge finance costs is—at best—a fool’s errand and—at worst—likely to plunge civilization back into the dark ages.)
How we Measured Progress
To keep track of all the progress made since the Industrial Revolution, we created all kinds of measurements. The private sector provided the majority of the funding required through the creation of credit and central bank money printing.3 It follows that the growth metrics we employed protected the interests of the suppliers of capital. Metrics like GDP, consumption, investment returns, international trade and the like. These are the metrics that celebrity intellectuals like Pinker, Diamandis and Kotler love to quote to show how genius the human species is.4 What we measure, and how we measure it, matters. Society’s values and goals matter because they are drivers of what we measure. An unintended consequence of these measurements was a class-based society, in which we all compete to outdo one another.5
Class-Based Policy-Making
History tells us that as we near the end of the cycle of a class-based society (Phase 5, Hubris and Phase 6, Totalitarianism), the society’s policy-making processes become concentrated in the hands of a few. The few influence policy to protect their wealth, at the expense of the rest of society.
We should not be surprised that this concentration is occurring today. The cycle has repeated again and again throughout history. Even the best-run civilizations and nations fell apart because of leaders who undermined existing social contracts with ludicrous policies.
What evidence do we have that policy-in-favor-of-the-few is happening today? The World Economic Forum (WEF) and the policies that stem from their annual meetings are the clearest demonstration we have of the senseless policies which (always) precede the collapse of a society. One often quoted WEF policy is:
If you haven’t paid much attention to what the WEF does (there’s no reason you should), this 15min satirical commentary will tell you everything you need to know:
Hubristic Leadership
While the video has nothing to do with ESG directly, we’ve shared it because the influential voices behind climate change and ESG are also supporters of the WEF: Charles III, Ben Affleck, Jacinda Ardern, David Attenborough, Fatih Birol, David Blood, Michael Bloomberg, Mark Carney, Leonardo DiCaprio, Anthony Fauci, Larry Fink, Bill Gates, Kristalina Georgieva, Al Gore, António Guterres, Jon Hale, Yuval Noah Harari, Michael Jantzi, John Kerry, Linda-Elling Lee, Emmanuel Macron, Scott Morrison, Rachel Notley, Fiona Reynolds, Johan Rockstrom, Jean Rogers, Mark Rutte, Klaus Schwab, Greta Thunberg, Justin Trudeau, Martin Wolf and many, many more.6
These names represent the modern version of leaders who succumb to hubris during late-stage civilizational collapse.
Hubris is a dangerous cocktail of overconfidence, over-ambition, arrogance and pride. The resulting behavior is fuelled by earlier power and success. This confidence generally leads to contempt for the advice and criticism of others. Leaders in this position tend to significantly overreach themselves, taking risky and reckless decisions. (We’ve seen an increasing number of these reckless decisions since 2020.) When these decisions are linked to policy (like climate), it can lead to harmful, sometimes catastrophic consequences for themselves, their organizations, institutions, and even for society. Already we have evidence of the harm caused to society in the UK and Europe in the form of a major power crisis.
Many of the names listed above are linked to the plethora of ESG standards and ratings agencies.7 It is through development of these ESG policies that a small number of individuals can control investments globally.8 Simultaneously they can suppress investment into businesses that don't embrace their belief systems and dogma. Filter bubbles on social media and control of global investments is how society is steered to conform to a predetermined hubristic belief system. Companies who don't conform are denied access to credit or insurance. Employees who don't conform are sacked. Social media users who dare to question the status quo are censored or ridiculed. The established social contract is ignored and vilified. Civil society is whipped into a frenzy using a manufactured crisis. Freedom of speech disappears. Eventually the society collapses.
“Those afflicted by hubris become the agents of their own destruction. Like a tragic hero, a civilization comes to a ruinous end due to intrinsic flaws that are the shadow side of its very virtues.” William Ophuls, Immoderate Greatness: Why Civilizations Fail
(It will be interesting to see how Elon Musk's recent acquisition of Twitter plays out. Already there are signs that he is being forced to play by existing rules.9)
These are not conspiracy theories. We are simply witnessing the playing out of patterns that have repeated many times before in history.
A Conscious Response to ESG
This cycle of history—and where we are in the cycle—is the reason why a wise and conscious response to ESG is a matter of life and death (for our societies). A business’ values and goals matter because they are drivers of what the business measures. Times have changed since Milton Friedman claimed in 1970 that business owners have no responsibility other than “to make as much money for their stockholders as possible.”10
We are no longer in the furious growth phase. The global economy has entered the wilting phase. Prioritizing the same set of measurements that were relevant during our growth phase (profit and shareholder return) simply perpetuates the same behavior: business-as-usual. The ESG response for most businesses means tagging on a few feel-good metrics to the primary metric of profit.
“What you measure affects what you do. If you don’t measure the right thing, you don’t do the right thing.” – Joseph Stiglitz, 2001 Nobel Memorial Prize in Economic Sciences
The Choices Business Leaders Face
Our global civilization is at a bifurcation point. We are facing the prospect of either the WEF’s Great Reset or a Momentous Leap.11 Businesses operating today—based on their response to ESG—either contribute to societal regression, OR enable a great leap forward.
The key calling for business leaders operating influential businesses during times of transition is to remain guided by your own critical thinking. You will come under immense pressure by the media, your competitors, your investors and shareholders to conform. But your heart and soul knows what is right. Your calling is to choose bravery over obedience. You can either outsource your perspectives and ESG strategy to auditing firms who are not as brave as you are. Or you can commit to your own critical thinking.
As a business leader, the choice you make about which path your company pursues has civilizational-level consequences. Choose wisely.
About Useless Maps
I have a nonsensical passion for traversing islands by going off the beaten track. The idea is to cut across the island rather than following the more sensible ring road.
While living in Taiwan, I tried numerous times and failed each time. Even though Google Maps shows a number of roads crossing the notoriously challenging north-south mountain divide, these roads (more like tracks) are blockaded by the military after some distance.
In 2004, I attempted to do the same on the much smaller island of Koh Samui in Thailand. I set off, horribly ill-prepared, with my travel partner on a small rented motorbike. The idea was to travel from Grandfather and Grandmother Rocks in the east to Nipa Loi Pier in the west. It would normally take 23 minutes using paved roads. Instead, the idea was to go via Tarnim Magic Garden in the middle of the mountain range. We had with us a printed map supplied by the island tourism bureau. There were numerous clearly-marked tracks as available options. The idea was to reach the west coast as the sun was setting. We headed off after a reasonably early breakfast.
By 3pm we’d barely navigated a quarter of the distance. By that time we’d come across at least a dozen discarded tourism maps. These useless maps didn’t take into account that many of the barely navigable tracks in good weather were completely washed away during monsoons. The maps were clearly not updated after every downpour ever.
It was a frightening experience. Here’s a pic where I’m feigning fear. As nightfall approached, that fear became real. It was getting dark, we had no idea where we were and we hadn’t seen any sign of human life since 10am. It’s hard to keep irrational fears of perishing on the mountaintop at bay.
At around 8pm, a Thai family of 4 came bouncing up the track on their equally small and inadequate motorbike. They chattered away in Thai explaining how to get down, but they could clearly see we had no idea where to go. Frustrated, they disappeared into the darkness to put their two small kids to bed, leaving us more alone than we were before.
About 30 minutes later we heard a commotion behind us. Two young men—one the father who’d just put the kids to bed—had returned on their motorbike. After a ridiculously misunderstood exchange, they convinced my partner to get behind the father on his bike. I had to get behind the other man on our bike. While we obviously had no reason to trust them, we had little choice. All the way down I formed mental images of what I would do if the other rider simply disappeared into the darkness with my partner.
After a hectic careen down the mountain in total darkness, they eventually got us safely to where we wanted to be. We were immensely relieved 1) for their willingness to help when they could have been comfortably tucked into bed and 2) because they didn’t take advantage of our vulnerability. We rewarded them handsomely, and ourselves with the stiffest gin and tonics we’d ever had.
Lessons Worth Learning
When the map is useless, throw it away. Navigation aids sometimes really do more harm than good. (ESG navigation tools are doing humanity more harm than good right now).
Be open to those who know the terrain. As difficult as it may be, trust their knowledge—what they know is far more valuable than your experience.
The journey they offer may initially be unpleasant, but the destination will be worth any short-term discomfort.
Upcoming Events
The world’s eyes will be turned towards Sharm El Sheikh, Egypt this weekend as COP27 gets underway. It’s widely expected to be another greenwashing farce, led by the sponsorship of the world’s biggest plastic polluter, Coca Cola.12 Of perhaps greater significance is the day of global action, which will take place on Saturday 12 November, at the mid-point of the COP27 UN climate talks. It's unlikely that any of the events planned will create conscious change, but let’s see.
What I’ve Been Reading
21 Oct 2022 - Ralph Thurm is co-founder of Redesign, Resilience, Regeneration. He is a vocal critic of ESG, and in this post he explains why the UN Global Compact have it all wrong: Commentary on UN GC’s ‘New Global Reporting System’. He doesn’t hold back! Worth reading all the comments too.
19 Oct 2022 - A meaningful exploration of how ESG attempts to hide/push aside/ obfuscate the inevitability of externalities: The Towering Problem of Externality-Denying Capitalism by Duncan Austin of the wittily-named blog at BothBrainsRequired.com.
05 Oct 2022 - The SustainAbility Institute explores Six Challenges for ESG Ratings. You can also participate in their investor or corporate survey. Doing so will include your input in their Rate the Raters 2022/2023 Report. Details in the link above.
24 Aug 2022 - A meaningful analysis by Harvard Law School on how ESG ratings providers have come under scrutiny over concerns of the reliability of their assessments: ESG Ratings: A Compass without Direction
01 Aug 2022 - Good read from Harvard Business Review which explains why the market cannot solve major societal challenges such as climate change. “One of Wall Street’s motivation for the frenzy of ESG product creation and overselling of planetary impact is the fees associated with ESG products.” ESG Investing Isn’t Designed to Save the Planet
22 Oct 2021 - A rational, scientific, timeless analysis by Stuart Loren, an investor and market analyst who explores why centralized policy on climate change will ultimately lead to a loss in personal freedom. “As a former lawyer, I give these [ESG] charts [from MSCI] and the accompanying document an A for obfuscation.” ESG and the Road to Serfdom
Ongoing Exploration - B. Lorraine Smith is a Canadian “corporate mischievist” who coined the term “matereality” partly in frustration with the industry jargon of materiality and double materiality. Her overview page is well worth exploring: https://www.blorrainesmith.com/matereality
‘Irrational exuberance’ is the phrase used by the then-Federal Reserve Board chairman, Alan Greenspan, in a 1996 speech during the dot-com bubble of the 1990s. It’s also the title of a book by American economist Robert Schiller. It is a cogent, chilling, and astonishingly far-seeing analytical work of capitalism’s growth phase: https://www.amazon.com/dp/0691166269/
For an insight into the financing challenges related to South Africa’s Just Energy Transition, see https://www.businesslive.co.za/bd/opinion/2022-10-24-patrick-bond-and-desmond-dsa-thorny-questions-for-just-energy-transition-partnership-negotiators/
The history of capitalism is diverse and obfuscated by difficult to follow economic theories plus a liberal dose of conspiracy theories. If you’d like a reasonable layperson’s version of the history of capitalism, see https://neilkakkar.com/capitalism.html
See, for example, Enlightenment Now: The Case for Reason, Science, Humanism, and Progress: https://www.amazon.com/dp/B073TJBYTB/; Abundance: The Future Is Better Than You Think: https://www.amazon.com/dp/B005FLOGMM/ and Stealing Fire: How Silicon Valley, the Navy SEALs, and Maverick Scientists Are Revolutionizing the Way We Live and Work: https://www.amazon.com/dp/B01GCCT3G6/
See https://bit.ly/C-Based-Society for the differences between a class-based society and a values-based society.
See, for example, https://www3.weforum.org/docs/WEF_AM22_List_of_confirmed_PFs.pdf, https://www.weforum.org/agenda/2022/01/the-davos-agenda-2022-addressing-the-state-of-the-world/, https://sovereignboss.co.uk/sustainable-finance-influencers/, https://esgfoundation.org/top-50-esg-ones-to-watch and https://apolitical.co/lists/most-influential-climate-100/. Also see chapter 10 of Organization outside Organizations: The Abundance of Partial Organization in Social Life by Göran Ahrne and Nils Brunsson: https://www.amazon.com/dp/B07S7DW6SJ/. The chapter title is An Organized Network: World Economic Forum and the Partial Organizing of Global Agendas.
For a work-in-progress of the overlapping interests, see https://bit.ly/ESG-cacophony
For a peek into how this works, discover BlackRock’s technology platform, Aladdin: https://bit.ly/BR-Aladdin. Larry Fink, CEO of BlackRock, is one of the most vocal supporters of ESG. When you understand how his firm uses Aladdin to shape global investments you will understand why ESG is so important.
See, for example, World Leaders Send Chilling Warning After Musk Takes Full Control Of Twitter (11:45 video)
"So the question is, do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer to that is, no they do not." ― Milton Friedman, 1970: https://web.archive.org/web/20180104081542/https://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html