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(Some of) What ESGers Don’t Understand

In my latest column for AIER I discuss one or two matters that proponents of ESG investing get wrong. Two slices:

A too-little appreciated virtue of private property rights is that each owner is free to say “no” regarding the uses of his or her property. And each and every one of us owns private property, even if that property is only the capacity to supply labor services. For each of us, our current ‘basket’ of property rights is protected by our ability to say “no.” If I offer to employ you to mow my lawn at a certain wage, your ability to say “no” ensures that you’ll not spend your time in ways that make you worse off. If you, as you personally judge matters, have better ways to spend your time than in mowing my lawn under the terms that I offer, you’ll reject my offer. (And, by the way, who’s in a better position than you to judge whether you should reject or accept my offer?) Even if you reject my offer, my making it doesn’t worsen your welfare.

Of course, you’ll accept my offer if you believe that doing so will improve your welfare.

Importantly, your freedom to say “no” incites me to improve the terms that I offer to you if my more generous offer still leaves me benefitting from employing you to mow my lawn. And if competition for your lawn-mowing services is coming also from my neighbors, that competition from other potential employers of you will prompt me – if I value your services more highly do any of my neighbors – to offer you more than is offered by anyone else who wishes to employ you.

If you accept my revised, improved offer of employment, you – and I – are made better off. And because I, too, have the ability to say “no,” any offer from you to mow my law must make me better off if I’m to accept it. The ability of each of us to veto any proposed deal means that every such deal, if it is to happen, must secure the unanimous consent of all parties to it. Each party’s ability to say “no” gives to every market participant incentives to offer terms to others that are mutually advantageous.

This lesson, while simple, is nevertheless profoundly important. And it scales up nicely. Even a highly profitable multinational corporation can hire and maintain the workers that it needs only by making those workers better off. A job offer that doesn’t improve a worker’s welfare is a job offer to which that worker says “no.” The same logic applies for consumers. A company that offers for sale a product to which too many consumers say “no” is a company that will either lower the price of that product or stop offering it for sale as the company brings to market a different product that it hopes will better please consumers.

Nothing more than the market process, in which all participants are free to say “no,” and in which entrepreneurs are free to enter with different proposals, is necessary to fuel on-going efforts of businesses – from minuscule moms’n’pops to massive multinationals – to offer deals to workers, consumers, and investors that improve the welfare of each and every party to the deals. Put differently, a profit-conscious business operating in a free market is necessarily also a business that acts as if it is socially conscious.


ESGers & Co. want corporate managers, who are agents for shareholders, to have the discretion to violate their fiduciary obligations in order to bestow unearned and unbargained-for benefits on whichever particular groups happen to be politically loudest or best able to serve as mascots for this or that ideological cause. ESGers & Co., in short, want the power to free favored individuals or groups from having to play by the rules of the market. The fact that many ESGers & Co. are unaware that they are advocates of breaking rules doesn’t change the reality that they are, in fact, advocates of breaking rules – rules that other people must continue to obey if the intended beneficiaries of ESG investing are actually to have any such benefits to enjoy.