Today, David Blood and Al Gore have an op-ed in the Wall Street Journal, in which they didn’t just offer an embarrassed excuse for interjecting politics into businesses, but a full-on paean to its desirability.  They euphemistically describe this goal as “sustainable capitalism,” by which they appear to mean capitalism that is managed by politicians and is subject to their whims in much the same manner as Russia “manages” its democracy.

The authors commence their argument with the familiar trope that it’s a brave new world out there and new controls are needed to rectify a host of problems.  Of course, the threats that the authors identify as being of serious concern are, with the exception of global warming, merely many of the same issues of the 70s, 60s, 1890s and 1880s recycled.  To quote:

 The disruptive threats now facing the planet are extraordinary: climate change, water scarcity, poverty, disease, growing income inequality, urbanization, massive economic volatility and more.

If you go back to the writings of Paul Ehrlich and the Population Bomb you can find all of these dangers spelled out in great deal.  You can also read about how the world, as we know it, should have ended about ten to twenty years ago from massive famine, disease, etc.  Go back to the 1890s and you can find writers talking about the issues of poverty, poor environment and income inequality in Britain and elsewhere.  In short, the “rare turning point in history when dangerous challenges and limitless opportunities cry out for clear, long-term thinking” is nothing of the sort.  It is not different this time and the issues the authors identify, while real, have been with us since the industrial age began.

So, now that Bood & Gore have set up their argument with an appeal to urgency, what exactly is it they want?

 Before the crisis and since, we and others have called for a more responsible form of capitalism, what we call sustainable capitalism: a framework that seeks to maximize long-term economic value by reforming markets to address real needs while integrating environmental, social and governance (ESG) metrics throughout the decision-making process.

The authors then go on to posit that, rather than asking why “sustainability” adds value, people should ask “Why does an absence of sustainability not damage companies, investors and society at large?”  Blood and Gore proffer a series of conjectures about why ESG metrics matter, all stemming from their belief that profitability is enhanced by paying attention to ESG:


  1. Developing sustainable products and services can increase a company’s profits, enhance its brand, and improve its competitive positioning, as the market increasingly rewards this behavior.
  2. Sustainable capitalism can also help companies save money by reducing waste and increasing energy efficiency in the supply chain, and by improving human-capital practices so that retention rates rise and the costs of training new employees decline.
  3. Third, focusing on ESG metrics allows companies to achieve higher compliance standards and better manage risk since they have a more holistic understanding of the material issues affecting their business.
  4. Researchers (including Rob Bauer and Daniel Hann of Maastricht University, and Beiting Cheng, Ioannis Ioannou and George Serafeim of Harvard) have found that sustainable businesses realize financial benefits such as lower cost of debt and lower capital constraints.
  5. Sustainable capitalism is also important for investors. Mr. Serafeim and his colleague Robert G. Eccles have shown that sustainable companies outperform their unsustainable peers in the long term. Therefore, investors who identify companies that embed sustainability into their strategies can earn substantial returns, while experiencing low volatility.


Having diagnosed the advantages of ESG (which may or may not be true) the authors run into logical problems when they come to their prescriptive analysis (or, rather, there would be logical problems if their real objective was to create a more efficient system, which it most emphatically is not).

If Blood & Gore are right, and all of the points above are true, then we have a very easy problem to deal with.  Companies like to make more money, not less.  They prefer to spend less than more.  They prefer a lower cost of capital to a higher cost.  They would rather outperform their peers than underperform.  If the advantages that the authors claim are really there, then all they need to do is produce the hard evidence that presumably underlies their argument and companies and investors will take ESG metrics into account.  They’d be fools not to and, even if some are foolish, the companies and investors that do incorporate ESG into their decision making will, over time, beat the ones that do not, thereby  leaving everyone left standing at the end of the day using ESG metrics.

Of course, the hard data isn’t really there, which is why the authors want to have the government require ESG reporting.  ESG is really about pressuring companies to follow green programs, politically correct policies and whatever flavor of the month the left is supporting.  ESG reporting requirements are meant to allow politicians to bang companies that fail to show the appropriate level of deference to the environmental, social and governance (read union) goals of left-wing politicians and labor leaders.  Positioning the adoption of ESG metrics as a pro-investment, pro-competition move is an insidious attempt to obfuscate Blood & Gore’s true objective, which is to create a political weapon that can be used to pressure companies to take all sorts of investor-unfriendly, unprofitable actions that are politically profitable and/or desirable by a select liberal constituency.