Magical Climate Change Pledges

Magical Climate Change Pledges

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.

 

ESG as Modern Gnosticism

As the world’s government and business leaders congregate this week and next in Dubai, trying desperately to save the planet from its inhabitants, those business leaders in particular have become the subject of increased criticism for failing to live up to previous promises.  For years, environmental activists and reformers believed that they had found a solution to the problems associated with intransigent electorates and feckless government officials, whose combined efforts prevented nations from taking the action necessary to halt climate change.  They would simply go around voters, cajoling and coercing corporate executives to make changes to their business operations that would address climate concerns while leaving the public largely unaware and unable to do much about it in any case.

The key to this solution, of course, was creating corporate “buy-in,” that is, convincing business leaders to play along.  And play along they did.  During the ESG heyday (2018-ish-2021), nearly all publicly traded American corporations adopted emissions reduction plans, environmentally sustainable practices, and ESG-aligned compensation structures, and many made public pledges to be leaders in the fight to halt climate change.

But then a funny thing happened on the way to environmental utopia.  These corporate “leaders” in the climate change fight failed to deliver on their promises:

When the insurance giant AIG rattled the industry last year with an audacious plan to stop writing policies for some of the most heavily polluting fossil fuel projects, environmentalists and lawmakers showered the company with plaudits. Now they are quickly losing patience with it.

Like so many other large companies pledging to help the world avert climate catastrophe, AIG is finding that making such vows is easier than making good on them….

Over the last year, Amazon retreated from an effort to zero out the emissions of half its shipments by 2030. Shell Oil dropped an ambitious initiative to build a pipeline of carbon credits through investment in forest preservation and other carbon-absorbing projects worldwide. And BP significantly scaled back its plan to reduce emissions by as much as 35 percent by the end of the decade….

[Net Zero Tracker] examined more than 1,000 companies that have pledges to zero out their emissions by 2050. It found that 38 of them — less than 4 percent — are doing the bare minimum required under the Paris agreement’s goal of limiting warming to 1.5 degrees Celsius. The rest are not meeting the “starting line criteria” laid out by the United Nations, which calls on companies to track their carbon footprint across supply chains, immediately cut emissions, create a scientifically credible plan for using carbon offsets, and report annual progress on meeting climate targets.

As difficult as it may be for environmental activists to accept, no one should be surprised by any of this.  Such an outcome was always inevitable for at least two reasons.

First, none of these pledges was made entirely voluntarily.  They were all made under duress.  In his famous 2020 letters to clients and CEOs, Larry Fink, the CEO of BlackRock, the largest asset manager on the planet, threw down the proverbial gauntlet.  The firm, had, Fink noted, just “announced a number of initiatives to place sustainability at the center of our investment approach, including: making sustainability integral to portfolio construction and risk management; exiting investments that present a high sustainability-related risk…and strengthening our commitment to sustainability and transparency in our investment stewardship activities.”

When the other two of “The Big Three” (Vanguard and State Street) echoed these sentiments, corporate leaders saw little choice.  They could either capitulate to the will of the three asset managers that, combined, likely held between 18% and 28% of their outstanding shares, or they could risk being de-capitalized by the three.  Just over a year later, when Engine Number One engineered a hostile partial takeover of the Exxon board of directors – with the aid of The Big Three, plus the two largest public pension plans in the country, CalPERS and CalSTRS – it was clear that, for the time being, at least, “sustainability” was the phrase that pays.  And they all said what they had to say to get paid, whether they intended to follow through or not.

The second reason that corporate leaders are currently reneging on their climate pledges is that those pledges were far more aspirational than practical.  Or, to put it more bluntly, no matter why they made the pledges or under what sort of pressure they did so, the pledges were never going to be met because they couldn’t be met.  Cutting emissions isn’t as easy as it sounds, and going all-in on “sustainability” isn’t as conducive to profit as naïve ideologues might presume.

Not quite a month ago, The Wall Street Journal ran an op-ed by Eugene Rumer and Andrew S. Weiss, two former intelligence officials, in which they declared that “Western leaders…have indulged all too often in magical thinking” about the ease with which Russia and Vladimir Putin will be defeated.  This was an interesting choice of words.  “Magical thinking” has a rather specific connotation in contemporary Western politics, one that makes it applicable in the case of corporate net-zero pledges as well.

Although he didn’t use the term specifically, “magical thinking” is a concept that is indelibly linked to the political philosopher Eric Voegelin, who described it in his classic The New Science of Politics as the foundational idea motivating much of modern “Gnostic” liberalism.

Voegelin explained that when an institution pledges itself to various unrealistic “social idealisms, such as the abolition of war, of unequal distribution of property, of fear and want,” – or, in this case, the realization of net-zero emissions, despite the lack of scalable, cost-effective alternatives – it enters into what he described as a “Gnostic dream world” in which its “leaders will recognize dangers to their existence when they develop, but such dangers will not be met by appropriate action in the world of reality.”  Rather than solve the problems at hand, those institutions will find themselves confronted only by magical thinking:

They will rather be met by magic operations in the dream world, such as disapproval, moral condemnation, declarations of intention, resolu­tions, appeals to the opinion of mankind, brand­ing of enemies as aggressors, outlawing of war, propaganda for world peace and world govern­ment, etc. The intellectual and moral corruption which expresses itself in the aggregate of such magic operations may pervade a society with the weird, ghostly atmosphere of a lunatic asylum.

Eventually, Voegelin concluded, “measures taken which are intended to establish peace increase the disturbances that will lead to war”:

In the Gnostic dream world … nonrecog­nition of reality is the first principle. As a conse­quence, types of action which in the real world would be considered as morally insane because of the real effects which they have will be con­sidered moral in the dream world because they intended an entirely different effect. The gap between intended and real effect will be imputed not to the Gnostic immorality of ignoring the structure of reality but to the immorality of some other person or society that does not behave as it should behave according to the dream con­ception of cause and effect. The interpretation of moral insanity as morality, and of the virtues of sophia and prudentia as immortality, is a confusion difficult to unravel. And the task is not facilitated by the readiness of the dreamers to stigmatize the attempt at critical clarification as an immoral enterprise.

This is precisely what has happened with the effort to manipulate capital markets to achieve political ends.  Instead of achieving their goals, activists have deleteriously impacted the engine of wealth in the West, have damaged several specific corporations and their reputations, and have delayed what many now acknowledge as the inevitable necessity of taking the fight against climate change to the people through their governments.  Rather than blame themselves for their destructive foolishness, however, they blame the executives who are “not living up” to their pledges or the asset managers who are “backing away” from their own promises.  It never occurs to them that their efforts lack sophia and prudentia (wisdom and prudence) and have only made everything worse.

Here’s the bottom line: Politicians are far better able to survive their participation in Gnostic schemes than are business leaders – and they both know it.  Larry Fink isn’t pulling back from his active and vocal support of sustainability because he has had a change of heart.  He is doing so because he knows that his life’s work is on the line if he doesn’t at least appear to retreat from the Gnostic utopianism of ESG.  And he’s just one of literally thousands of corporate executives who understand this.  Shareholders and clients – including several state pension funds – are far less forgiving or easily distracted than are voters.

Again, no one should be surprised that corporations are failing to live up to their environmental promises.  That some people nevertheless still are serves as proof of the power and resilience of magical thinking.

Stephen Soukup
Stephen Soukup
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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.