‘Green’ Economics Has Failed Even on its Own Terms – and Imperilled Our Pensions in the Process

Researchers from Stanford, Harvard and London Business School found ESG policies did “not improve funds‘ green credentials”

Yet another nail in the coffin of ESG has been hammered home by a recent analysis of EU policies intended to drive the investment fad and boost Europe’s failed ‘green economy’. According to the FT, researchers from Stanford, Harvard and Amsterdam universities and London Business School found such policies “had not meaningfully improved funds’ green credentials in terms of carbon emissions or on other measures, nor had [they] boosted fund flows to green funds”. Once, and not very long ago, private finance was going to change the world, and all it took was the right policy framework. Rishi Sunak stood on the stage at COP26 and announced the alignment of financial institutions with $130 trillion of assets under management. Mark Carney, then Bank of England governor, now Prime Minister of Canada, joined him to explain how the “plumbing” of world’s entire financial system had been changed, and now climate was at the “centre of every financial decision”, led by alliances of banks and insurance companies. Now that those alliances are in tatters, Carney has exposed the lie of the “rules-based international order” and Europe is in economic torpor, how will the Green Blob respond?

There is a very odd British and European conceit – in both senses of the word – that economic growth and technological development emerge from policymakers’ pens. Consider, for example, the former Prime Minister Rishi Sunak, mentioned above. As the promises of AI tech were emerging in the form of early deepfakes and crazy pictures, Sunak believed that the way to incubate this new technology and nurture British talents to exploit it was to establish a “global hub”, which would house an “AI Safety Institute”. This would “cement the UK’s position as a world leader in AI safety”. Similarly, British and EU governments have, as needs no re-telling here, long argued that, somehow, aggressive emissions-reduction policies will ‘boost’ and ‘kickstart’ the ‘green technologies’. Instead, of course, the job of making solar panels and wind turbine materials and components lands with manufacturers in the East. ESG was a very similar proposition.

The FT explains that, as the momentum behind ESG was growing, some finds were accused of ‘greenwashing’ – merely wrapping conventional investment up in green marketing spin. The EU should have left it there, but in 2021 it introduced Sustainable Finance Disclosure Regulation, which required funds to identify themselves according to a taxonomy, effectively rating the ‘greenness’ of the fund. But it was too boring and expensive, and “the categorisation of funds is too confusing for many investors”, says the FT. Investors just didn’t care. And, according to the researchers and other analysts, Europe’s flagship green policies have only succeeded in epitomising the bloc’s broader economic torpor and industrial decline. Accordingly, the EU is revising its policies.

But a simpler explanation for the failure of ESG products might hold. Just a small fraction of the $130 trillion promised at COP26 in 2021 has made its way to green investment funds of any consequence. This is frequently blamed on political pushback against ESG, characterised by Donald Trump’s second Presidency and Republican state lawmakers pursuing antitrust cases against what are manifestly cartels. While that cannot be entirely ruled out, the better explanation is that ESG, like the environmentalism that spawned it, was always at odds with material reality: only cartel-like behaviour could sustain turnover and profit, because without it any so-called ‘free-rider’ that didn’t agree to ESG rules would have the advantage in any given market.