Our natural environment is facing fundamental challenges. Beginning with climate disruption, they could pose an existential threat to our way of life.
Record levels of warmth are registered in various cities and nations, and in oceans. 2023 marked the hottest year in history, according to the National Oceanic and Atmospheric Administration.
A series of international environmental agreements have occasioned achievements as well as setbacks in emissions reductions. Widespread public support has spurred massive public and private investments in a range of responses, from technology development and deployment, to industrial policy and planning.
One recent aspect of our mobilization of resources is the application of Environmental-Social-Governance [ESG] criteria to investments.
ESG has proved a disappointment to many investors. It is also prompting partisan political conflict that threatens continuing, expanded support for key environmental goals.
As so often in our polarized moment, the ESG debate tends to follow binary, all-or-nothing, black-and-white patterns. This reflects our media environment and two-party structure. It is not about protecting the environment.
At this hinge moment, we should recast ESG, placing full emphasis on the environment. The social-governance appendages should be jettisoned.
At this hinge moment, we should recast ESG, placing full emphasis on the environment. The social-governance appendages should be jettisoned.
If our environmental future is an existential matter—one that has profound practical and intergenerational consequences—it should be treated accordingly.
Think of the Second World War. The United States confronted an existential threat from the German Third Reich and the Imperial Empire of Japan.
President Franklin Roosevelt’s administration did not declare War-Social-Governance. There was only war. Everything followed from that.
President Franklin Roosevelt’s administration did not declare War-Social-Governance. There was only war. Everything followed from that.
If we aspire to be as serious as the World War II generation, shouldn’t we think the same way about our environmental challenge?
ESG Fails
Elon Musk courts controversy. That does not mean he’s not exactly right about ESG.
No one can credibly maintain that the environmental performance of Shell, Exxon, and Philip Morris surpasses Tesla.
The social and governance aspects are another matter. They are elastic. The “social” criteria include relationships with stakeholders. They may include labor relations and product liability. The “governance” criteria include evaluations of management, such as whether board members and executives meet racial, ethnic, and gender targets.
Thus a company that advances environmental protection in real time can have its ESG score downgraded for non-environmental reasons.
If a board or the lineup of top executives include individuals with environmental expertise, the company could nonetheless be disfavored on account of being less “diverse,” meaning more “white” or male in composition than the ESG rater would suggest.
If an environmentally sound company has been sued by community or labor advocacy groups, it could have a lower ESG score than an environmentally challenged counterpart. Among other things, this can set environmentally counterproductive incentives.
The social and governance metrics are liable to inconsistent application and abuse. The decisions are often made by bureaucrats nestled in financial and institutional services firms.
The operational dysfunction was illuminated amid a burst of candor from an unexpected source: disgraced cryptocurrency trader Sam Bankman-Fried.
Bankman-Fried’s fraudulent enterprise, FTX, received a higher ESG “governance” rank than ExxonMobil.
In a Twitter communication with Vox writer Kelsey Piper, Bankman-Fried conveyed his contempt for the process of gaming ethical ratings:
ESG was conceived as a shared venture between the United Nations and global financial firms and regulators. It has evolved within the oligarchic power emerging in the United States and the Collective West, linking government, finance, NGOs, international institutions, and elite universities. This helps explain how the social-governance component of ESG has become enmeshed with Diversity-Equity-Inclusion [DEI].
These trends accelerated during the political moment following the Great Recession through the turbulence of 2020-21. That was also at the tail end of a prolonged period of artificially low interest rates.
The circumstances are now changing, with regularized interest rate levels occasioning turbulence. This, combined with disappointing experience, is placing DEI and ESG in jeopardy.
The natural environment does not respect borders or political affiliations. It doesn’t sort out identity categories, much less motivations. It responds to the consequences of stewardship or negligence or assaults of human intervention from any source.
The natural environment does not respect borders or political affiliations. It doesn’t sort out identity categories, much less motivations. It responds to the consequences of stewardship or negligence or assaults of human intervention from any source.
Putting the Environment First
What might it mean to put the environment first?
—Climate A laser focus on climate disruption would mean a laser focus on decarbonization.
This would include a comprehensive public review of nuclear energy technologies.
It could prompt a much-needed examination of the technical issues relating to production, useful life, and disposition of batteries, energy storage devices, and transmission. The rapid advances of innovation suggest the need for caution in allowing political considerations to privilege technologies and approaches that may be surpassed in environmental efficacy.
It could occasion a hard look at our current climate politics, which often casts the oil and gas industry as an unregenerate villain. This is a costly indulgence in an existential, all-hands-on-deck moment. There is extraordinary expertise and experience in the oil and gas industry that can spur innovation and accelerate action.
—Energy Security The Russia-Ukraine War shattered the illusion that Germany’s economic future could be heedlessly entrusted to the tender mercies of Vladimir Putin. Long renowned as the powerhouse of Europe, Germany has sustained momentous declines in productivity and living standards, approaching deindustrialization in key sectors. Despite its commitment to environmental improvement, Germany has been forced to retreat, resuming coal production. Its overreliance on natural gas from Russia has been succeeded by dependency on American sources.
Many nations will take somber note of the fact that Ukraine rendered itself vulnerable to aggression through renunciation of its nuclear weapons capacity. This may prompt a cascade of new challenges.
—Artificial Intelligence AI is poised to become a major factor in environmental affairs.
On the positive side of the ledger, AI can benefit environmental analysis, monitoring, and enforcement.
At the same time, it is credibly projected that AI data centers may soon consume more energy than India, the world’s most populous nation.
Effective regulation of AI’s environmental aspects will be required at the national and international levels. Salesforce and other tech industry leaders are sensibly striving to participate in this process.
—Plastics Increasing concerns about the health risks from microplastics could yield significant regulatory activity in the United States. The United Nations is convening negotiation of a global treaty regulating plastic pollution.
—Water Conflict over access to water is familiar throughout history. It’s becoming more pronounced amid climate disruption, and evolving land-use and consumption patterns.
—Metrics and Accountability Environmental challenges are so far-reaching and consequential that they can be difficult to comprehend and impose public accountability. Developing authoritative repositories of reliable statistics must be a high priority—a task at once more urgent and more difficult in our low-trust moment.
Make the Environment an Honorable Political Practice
Three decades ago I met with a British politician whose project I admire. Conversant with science as well as history, he foresaw the hazard of energy and environmental issues remaining sequestered in partisan, interest group driven frames of thought and discussion.
Looking ahead, he said it would become essential for environmental protection to become an “honorable political practice.”
His urging and admonition remain pertinent today.
With populist impulses rising, the effects of environmental policies on families and communities are increasingly controversial. Too often such policies are identified with the interests and status pursuits of people of high incomes, including governing elites.
To make the environment an honorable political practice, it’s essential that we alter that perception and reality. This is yet another reason to focus on the E—and drop the S-G.
Everyone wants to see environmental progress. Everyone wants to contribute to it in a meaningful, fair, informed way.
Through clarity and transparency at the front end, we can present choices to the general public, rather than interest group driven approaches without room for meaningful public participation.
With nationalism rising—including positive and negative aspects—amid global challenges, we must demand a new environmental statecraft, fit for purpose in our new century.
100% spot-on, Jim!