ESG-compliant firms cause more carbon emissions, says report

Companies which receive high marks in environmental, social and governance (ESG) ideology are likely to cause more “climate change” through higher carbon emissions, a report has found.

ESG is a form of grading companies and countries — and soon people, experts warn — on how well they conform to prevailing narratives on environmental and social issues. For example, the more “environmentally friendly” or “racially inclusive” a company purports to be, the more virtuous it is and thus more worthy of investment. If a company’s ESG score is below certain thresholds, they are not to be invested in at all. 

The ideology has received significant pushback, most recently from billionaire entrepreneur Elon Musk who referred to ESG Friday as “communism rebranded”.

Now a report from ESG advisory group Scientific Beta has found that ESG-compliant companies pollute just as much as non-compliant companies, if not more so.

The group looked at 25 ESG scores provided by Moody’s, MSCI and Refinitiv ratings companies and found that 92% of the carbon intensity reduction “achieved” by firms through investing in highly compliant companies is lost when factoring in ESG. Obtaining a high ESG rating requires a company to implement certain practices related to waste management, water resources and other areas which do not necessarily reduce carbon emissions.

When measuring a company’s commitment to ESG’s environmental standards against actual carbon intensity reduction, Scientific Beta found there was little to no correlation. 

“ESG ratings have little to no relation to carbon intensity, even when considering only the environmental pillar of these ratings,” Scientific Beta Research Director Felix Goltz told the Financial Times. “It doesn’t seem that people have actually looked at [the correlations]. They are surprisingly low.” 

“The carbon intensity reduction of green portfolios can be effectively cancelled out by adding ESG objectives,” he added.

Moreover, factoring in all ESG standards — not only environmental tenets — resulted in a negative correlation to carbon emissions reduction.

“On average, social and governance scores more than completely reversed the carbon reduction objective,” Goltz said.

Proponents of ESG include lawmakers, the world’s largest investment firms, and tech giants. BlackRock CEO Larry Fink, who manages $10 trillion in wealth, vowed to “force behaviors” when it comes to ESG.

But ESG authoritarianism is facing growing resistance, even from some in the corporate world. Aside from Elon Musk, shareholders in Warren Buffett’s Berkshire Hathaway investment firm in May overwhelmingly rejected proposals related to ESG and “diversity”.

There have also been increasing political counterattacks on ESG. In March, nineteen US states led by Florida Governor Ron DeSantis formed an alliance to detoxify their states from radical ESG ideology.