The ESG Report Card and Rise of Private Markets

This chapter assesses the economic and social effects of ESGESG advocacy by institutional investors. There is little evidence that the ESGESG movement has enhanced any commonly accepted shareholder value metric as envisioned by its leading supporters, a point that has even been acknowledged by those who are sympathetic to the ESGESG movement’s posture on issues like gender diversitygender diversity and climate changeclimate change. Public opinion is more fractured than during the New DealNew Deal era, with ESGESG emerging as a lightning rod political issue among Republican politicians and conservative pundits who view ESG activism as a device for forcing liberal values on corporate America. There is scant proof that the ESGESG-based stakeholder paradigm has changed the dynamics of the financial markets in any way that had led to a decline in shareholder-centric myopia and economic short-termismshort-termism that helped usher in the growth of the ESGESG movement in the years following the Great Financial CrisisGreat Financial Crisis. Amidst these pressures, fewer companies find it an attractive proposition to either go or remain public. Particularly among technology and other “innovation economy” businesses, it is difficult to pursue the type of long-term-focused and risky investments necessary to grow and flourish in the public markets. As a result, more than a third of corporate equities in the United States today are managed outside of public companies in the private marketsprivate markets, with much of the growth occurring in the years following the Great Financial CrisisGreat Financial Crisis. There is perhaps no area of the U.S. economy that more clearly illustrates the deleterious effects of our current system of asset manager capitalism than the energy industryenergy industry.