The ESG Dilemma: Can Capitalism Solve the Climate Crisis?

Each year, the global climate crisis becomes more severe. The year 2023 was the hottest on record, and 2024 is on track to claim that title by year-end. Despite growing awareness of the scale of the crisis, politicians are no closer to finding a way out of it. Fortunately, the world of capitalist finance has a solution: an eco-chic, corporate buzzword called “ESG” – short for “Environmental, Social, and Governance.” Through ESG, asset managers and hedge funds promise that we can invest our way out of the climate crisis.

However, ESG hasn’t been having the easiest time. It has come under criticism, not only from the left but from investors themselves, as a glorified form of greenwashing. Meanwhile, right-wing culture warriors have gone after ESG as “woke investing.” Pro-ESG investors may have to wait for their next windfall, as ESG funds recorded their worst quarter at the end of 2023, with a net loss of $5 billion. One JPMorgan Chase executive noted that ESG funds’ underperformance has “been a challenge.”

So, what is ESG anyway? Is investing our way out of the climate crisis even viable? And if the right hates ESG investors so much, does that make them reliable allies to the environmental movement?

What Does ESG Mean, Anyway?

Environmental, social, and governance (ESG) is a corporate philosophy that involves a set of considerations that can be used while investing. Firms are encouraged to account for the impact that environmental issues, social issues, and corporate governance may have on the market and invest accordingly. The term was coined in a 2004 report by the United Nations, endorsed under a coalition called “Who Cares Wins,” made up of 20 financial institutions. This coalition pushed to develop guidelines and recommendations on how to better integrate environmental, social, and corporate governance issues in asset management and securities brokerage services. The subtitle of the report was “Financial Markets in a Changing World.”

In that same report, DuPont’s then-CFO confessed that corporations are under pressure to create ever-increasing shareholder value. “Enhancing environmental and social performance are enormous business opportunities to do just that.” This admission reveals that corporations like DuPont, which have historically lobbied against addressing climate change, are not genuinely committed to environmental stewardship. Instead, they are leveraging changing attitudes toward climate awareness as a new way to make money by presenting the appearance of caring.

Since then, ESG has continued to serve as an investment opportunity with groups like Climate Action 100+, a coalition focused on “driving the global net zero emissions transition” by 2050. However, many of the companies involved, including some of the biggest polluters on the planet like BP and Chevron, have not made significant progress toward their climate goals. According to Carbon Tracker, most of these companies “are not moving fast enough to align with the goals of the Paris Agreement.” Thus, ESG, by all accounts, is often seen as glorified greenwashing.

Greenwashing the Financial Sector

The former chief investment officer of Sustainable Investing at BlackRock wrote an op-ed challenging ESG’s premise that “pursuing social good was also good for the bottom line.” He lamented that it was just a “hopeful idea,” revealing that ESG is “little more than marketing hype, PR spin, and disingenuous promises from the investment community.” In this op-ed, he exposed how asset management companies will manipulate the numbers to appear more sustainable than they really are. For instance, ESG investment products often include big polluters, like oil companies and fast fashion manufacturers, to boost the fund’s performance.

For portfolio managers, the goal is to maximize profits, and anything else—like addressing climate change—is secondary. This is why, despite the ESG hubbub, Goldman Sachs predicts that investment in liquid natural gas will rise by 50% in the next five years, a significant problem for climate change. This confirms what socialists, environmental activists, and young people have been saying for decades: green capitalism cannot deliver the fundamental changes needed to effectively combat the climate crisis.

Right-wing Backlash

As little progress is made on climate through ESG policy, it has become a target in the right wing’s culture wars. Attacks on ESG have fueled Trump’s campaign, with the Heritage Foundation claiming that ESG promotes “nearly every left-wing policy issue” corporations care about. In 2023, GOP lawmakers proposed over 150 anti-ESG bills in the House. For instance, Tennessee filed a case against BlackRock’s ESG policy, while New Hampshire proposed a bill against using ESG criteria for state funds.

Despite being a signatory to Climate Action 100+, BlackRock voted for only 2 out of 20 climate shareholder resolutions in 2023. Florida Governor Ron DeSantis even signed a law banning state officials from investing public money to promote ESG goals. Meanwhile, Vivek Ramaswamy, a failed Republican presidential candidate, co-founded an asset management company promoting fossil fuel investment, with an exchange-traded fund titled $DRLL—short for “drill.”

These anti-ESG bills do not challenge the status quo; they merely argue that there should be no green anything. Both Democratic and Republican politicians remain intimately tied to Wall Street, and these bills do nothing to address the multiple crises facing working people right now. However, they may provide companies with an excuse to retreat from their ESG commitments, leading to a trend known as “greenhushing,” where firms discreetly report on their less-than-stellar sustainability numbers.

Greenhushing

The firms that adopted ESG did so primarily to profit from the growing public concern about the environment. However, the right-wing anti-woke backlash has shifted what is profitable to pander to. In February 2024, major players in Climate Action 100+ decided to quit the group, including JPMorgan Chase and State Street, taking $14 trillion in assets with them. If the anti-ESG sentiment is loud enough, masquerading as a company that cares about sustainability can become detrimental to business.

For some CEOs, like Exxon’s Darren Woods, the mask is completely off. Woods has openly stated that it’s not Big Oil’s fault there’s a dangerous amount of carbon emissions in the atmosphere; instead, he blames ordinary people. This attitude reflects a broader trend among corporate leaders who refuse to take responsibility for their role in the climate crisis, placing the burden on the working class instead.

Investment Companies Won’t Save the Planet

The response to this situation should not be “woke” or “green” capitalism; it shouldn’t be capitalism at all. Green capitalism’s solutions for this crisis primarily benefit wealthy liberals—think solar panels on homes, electric cars, and investments in green energy companies. For the rest of us, the burden of addressing climate change falls on individuals who are already stretched thin, working multiple jobs, and struggling to make ends meet.

Investment companies, no matter how green or pro-ESG they claim to be, cannot deliver the change that working people and the planet desperately need. The bottom line always comes first; the environment never will. This is the nature of capitalism. When Exxon posted historic losses during the early pandemic years, what boosted their earnings? The inter-imperialist war in Russia and Ukraine and the fear it generated around energy stability. Why should BlackRock invest in solving the climate crisis when they see better results from investing in military contractors and weapons manufacturers?

If Not ESG, Then What?

Capitalism thrives on destruction, waste, and conflict. ESG cannot save us; it merely serves as a protective shield for corporations that operate within a system that is killing us. To genuinely tackle the climate crisis, we must challenge the capitalist system altogether. Any serious attempt to fundamentally change our environment will likely provoke backlash from both the right wing and “woke,” ESG-friendly corporations.

So, if we can’t count on them, what can we do? We need to organize and mobilize as workers, students, and socialists. We need a massive green jobs program that offers high-paying union jobs. We need to tax the rich to fund public transportation and public housing. We must take big energy companies, agribusiness, and polluting industries into public ownership under democratic workers’ control. Only when we run a democratically-planned economy focused on people’s needs, free from the profit motive, can we genuinely address the climate crisis.

In conclusion, while ESG may appear to offer a pathway to a sustainable future, it ultimately falls short of delivering the systemic change required to combat the climate crisis. The solution lies not in green capitalism but in a radical rethinking of our economic and social structures.