The goal of “sustainable” finance is to incorporate environmental, social and governance (ESG) considerations ones into investment decisions, as opposed to focusing on financial returns. To many, that may sound benign. But before you draw that conclusion, I urge you to consider what motivates the sustainable finance movement. As—and if—it gains traction, it will impact you whether you are investor or not. The impact will not be benign.
As the proponents of it (including hedge fund managers Larry Fink and Tom Steyer) explain, the goal of sustainable finance is to avert climate change by using government regulations to steer the global financial markets away from investments into industries that emit greenhouse gases, such as the production of fossil fuels.
If you are now cheering for sustainable finance, consider the assumptions behind it and implications for human flourishing, including yours.
First, the assumption that we are living in a climate emergency (caused by greenhouse gas emissions from human activity) that threatens our survival must be questioned. While the climate alarmists’ predictions of the end of life on our planet vary from Alexandria Ocasio Cortez’s 12 years to a slightly longer 50 years by others, there is no factual evidence to support them. And while there is evidence of a slight increase in the average global temperature and some human contribution to that, nothing indicates that the planet is heating up catastrophically and that eliminating our fossil fuel use would reverse the trend.
Second, the assumption that free financial markets would facilitate environmental damage or poor governance of corporations is also dubious. Mark Carney, the former governor of the Bank of England and the newly appointed United Nations’ special envoy on climate action and finance, defends government control of financial markets. According to him, markets are based on “selective information, spin, and misdirection” and cannot be trusted to fight climate change. Read Terence Corcoran’s excellent analysis of Carney’s new mission here.
However, it is the free market (and private ownership of property) that propels financial decision making toward long-term self-interest, which includes sound corporate governance, respect for property rights, and protecting one’s own property against environmental damage.
Third, we must ask what the implications of abandoning fossil fuels are for human well-being. The reality today is that most of the world’s energy (about 80%) comes from fossil fuels. We need energy to survive, as acutely experienced during the Canadian winter. Canadians would die of cold or the inability to produce or buy the material values we need to survive—if it weren’t for the abundant, cheap and reliable energy from natural gas, oil, and coal. New alternative sources of energy will likely be discovered in the future, but they are not available today. Until they are, we need fossil fuels.
Finally, and most fundamentally, sustainable finance as imposed through government regulation harms human flourishing by violating the investors’ freedom to choose. Freedom to choose and act based on one’s own rational thinking is a fundamental requirement of human flourishing.
When the government dictates financial (or other) decisions, investors cannot maximize their financial wealth. Yet wealth maximization is necessary for optimal human flourishing. Financial wealth makes new discoveries in all fields, including in medicine, possible. Financial wealth fuels innovation in products and services—that make human life better: healthier, longer, more productive, and enjoyable. Financial wealth gives us not only the material values that benefit our lives, it also affords us time for other pursuits to enhance their flourishing.
If we want to maximize human flourishing, we should oppose proposals for “sustainable” finance and advocate for free financial markets and individual freedom in general.
The government should get out of controlling and manipulating markets for the questionable goal preventing climate change and benefiting “society overall.” Instead, it should focus on its proper role of protecting individual rights against coercion and leave people free to pursue their own flourishing—which is the only way to truly sustainable prosperity.