Do Shoppers Really Reward ESG?

Do Shoppers Really Reward ESG?

The following commentary/analysis is one I wrote in my capacity as a senior fellow at “the nation’s oldest consumer protection agency,” Consumers Research, where, among other things, I compile a weekly letter for public pension-fund managers.  I am sharing it here today because I thought it might be useful to some of you.



Last week, the Harvard Law School Forum on Corporate Governance posted a short article by Jean-Marie Meier, a Visiting Assistant Professor of Finance at The Wharton School, University of Pennsylvania, and Assistant Professor of Finance at the University of Texas at Dallas – Naveen Jindal School of Management.  The point of the article was to allow Professor Meier to alert students and readers to a working paper that he and several colleagues have been writing that purports to show that retail consumers care about ESG and are prone to alter their purchases based on E&S-related criteria.  In brief, Meier et al. found that consumer purchases are positively correlated with E&S practices and that this correlation is larger in areas that are higher income and further to the Left politically.  He writes:

The advantage of our setting over prior work is that we have detailed barcode-level sales data on specific products sold at the level of US counties.  The granularity of our data enables us to compare very similar products sold in the same location at the same time by companies with different levels of E&S activities.  If consumers pay attention to the social and environmental externalities of their consumption decisions, we expect this to influence their choices of products and services.  Thus, the demand for a product should depend on its quality from an E&S perspective, a quality that may be perceived through the E&S ratings of the brand owner.

Using the Nielsen Retail Scanner Data over the period of 2008 to 2016, we find that a brand owner’s E&S rating is positively related to local product sales.  The result is economically large: a one-standard-deviation increase in the owner’s E&S rating is related to an increase in sales of 9.2% in the subsequent year for the average product sold in the same county.  Given that we compare very similar products during the same year, it is unlikely that this effect is due to the decision of the company to adjust its supply of products.  We also ensure that this effect is not due to changes in product quality or changes in firm characteristics, other than E&S performance.

We further consider the impact of demographic characteristics on the relation between E&S efforts and product sales and find that this relation is stronger in counties with more Democratic-leaning and higher-income households.  Thus, consumers’ political orientation and income are important in shaping their preferences to consume the products of companies that are more socially responsible.

To be blunt, this is a very good and well-conceived study.  It is valuable and, as Meier notes, constitutes an important contribution “to the literature on ESG/CSR….”

The catch, unfortunately, is that the study may not say exactly what the researchers think it says about ESG.  Indeed, it likely says something entirely different.

The most important thing to note here is that the data included in the study end in 2016.  This tells us several things.

First, this tells us that while the data may demonstrate a preference among consumers for environmentally and socially responsible business practices, they do NOT show such a preference in the context of ESG.  My book, The Dictatorship of Woke Capital, takes a long look at the history of social investing, starting with John Wesley in the 18th Century.  The term ESG – and the uniquely coercive practices it describes – did not exist until, at the very earliest, 2005, when “the United Nations Environmental Program (UNEP) commissioned a study from Freshfields Bruckhaus Deringer, a London law firm…The question UNEP wanted answered was this: ‘Is the integration of environmental, social and governance issues into investment policy (including asset allocation, portfolio construction and stock-picking or bond-picking) voluntarily permitted, legally required or hampered by law and regulation…?’”

That is to say that ESG really did exist as an entity until three years before the Meier, et al. data set began.

More to the point, very few people – and almost no one in the public at large – knew anything at all about ESG in 2016, when the data series ends, much less in 2008.  BlackRock – universally understood to be the popularizer of ESG investing – didn’t even get serious about the issue until two years later.  And when my book was published in 2021, I spent more time in interviews explaining what ESG is than I did discussing the investment strategy or the issues it raised with respect to shareholder primacy.

In short, then, Meier and his colleagues demonstrate that environmental and social concerns motivated retail consumers in a positive direction, but they did so in an atmosphere that no longer exists, in an era in which such concerns were – at least in theory – motivated by concerns and recognized as relevant outside of the politicization process associated with ESG.  And note here that this applies whether one believes (as I do) that ESG is inherently political or believes that the pushback against ESG is what is causing politicization.  During the period from 2008-2016, the years the data in the study cover, retail shoppers knew nothing of ESG, knew nothing of the political predispositions that underlie it, and knew nothing of the coercive tactics that distinguish ESG from traditional SRI.  The study captured sentiment and behavior relevant to conditions that no longer pertain and can never be recreated.

Relatedly, it should be obvious to any interested observer that developments in retail attitudes and behavior in the years since the end of the Meier data set point in precisely the opposite direction of the conclusions reached in the study.  As the details of ESG have seeped into the public’s consciousness, attitudes appear to have moved in the direction of greater and greater opposition to the overt utilization of E&S practices in business.  By this, I mean that the conclusions Meier, et al. reached are far removed from the ESG-related consumer blowback against Bud Light, Target, Disney, and others.  This blowback may, indeed, support the idea that consumers care about E&S in retail purchases, but it completely undermines the idea that this correlation is positive, that E&S considerations motivate greater consumer loyalty to brands and products.

To be clear, much of the evidence related to this E&S blowback is anecdotal, but some of it is not.  Consider, for example, the following:

Most Americans don’t want businesses to inject their opinions on the most contentious political and social issues, according to a new poll conducted by Gallup and Bentley University.

Jennifer Sey, a former marketing executive at Levi’s who was ousted from the company for her outspoken stance against school closures during the COVID-19 pandemic, said the poll seems to indicate that as more and more brands get political, consumers from both sides of the political spectrum are left feeling alienated and without choices.

Nearly 60% of Americans think businesses should not take a public stance on current events, which is up from 52% last year, according to the Gallup poll. Political party, race and age were most determinative of how Americans believed businesses should act.

“People largely want to be able to buy products they love [and] engage with brands they love without having to worry about politics,” Sey said….

Will Hild, the executive director of Consumers’ Research (CR), which has an ongoing campaign calling out companies who are serving “woke politicians” instead of their consumers, told Fox News Digital that the poll’s direction goes against politics and while 55% of Americans might be in favor of a business speaking out on climate change, that still means 45% either don’t or don’t care about it….

Business expert Josh Cadillac also made the argument that while some Americans might be okay with a business speaking out about environmental issues, they might not back it up with their checkbook should it impact prices. 

“They like it [climate change activism], but when it starts to cost them money, if that same question was asked, ‘Hey, how much are you willing to pay extra for things in order to support this cause,’ I think that you’d probably see a very different reaction,” Cadillac said.

The point here, simply, is that ESG has politicized business.  Period.  There is no denying it, and there is no going back.  Moreover, consumers are increasingly rejecting this politicization of their retail purchases.  Again, much of this data is anecdotal, but it nevertheless provides a powerful counter-narrative to the findings reached by Meier, et al.  E&S considerations may have produced positive consumer loyalty in pre-ESG days, but it is highly unlikely that similar results would be reproduced today or could ever be reproduced again.

One final note on modeling: It is worth noting that the data used by Meier et al. measured retail product purchases only.  They did not address the issue of retail chains (e.g. Target, Dick’s) employing E&S calculations, nor did they address other corporate-level E&S efforts (BlackRock’s adoption of “sustainability” as its primary investment criterion; the Los Angeles Dodgers’ “Sisters of Perpetual Indulgence” promotion; etc.)  This suggests that the application of their model may be limited to a smaller set of relevant retail-oriented corporations than initially thought – even disregarding the behavioral and attitudinal developments of the last seven years.

In sum, then, Jean-Marie Meier and his colleagues have produced a significant paper, with strong findings relevant to a limited timeframe, prior to the dawn of widespread ESG awareness.  By extension, the paper also demonstrates, albeit unwittingly, that ESG and the politics associated with it have radically altered the behavior of American consumers.

This is, indeed, a significant contribution to the ESG literature.

Stephen Soukup
Stephen Soukup
[email protected]

Steve Soukup is the Vice President and Publisher of The Political Forum, an “independent research provider” that delivers research and consulting services to the institutional investment community, with an emphasis on economic, social, political, and geopolitical events that are likely to have an impact on the financial markets in the United States and abroad.