Part 2
It is on this battlefield that the third in the trio of books reviewed here is so valuable. Rather than directly confronting ESG and stakeholder capitalism head-on, in May Contain Lies: How Stories, Statistics, and Studies Exploit Our Biases—and What We Can Do About It, Alex Edmans provides the tools and, perhaps more importantly, the skeptical mind-set to unpick common ESG claims. Edmans, a professor of finance at London Business School, recently wrote two important papers on ESG: “The End of ESG” (2022); and “Applying Economics—Not Gut Feel—to ESG” (2023), which overturn conventional thinking on ten key ESG issues.
Edmans reviewed an early draft of McLean’s book. “What better person to get feedback from?” McLean asks. Yet they are on different sides when it comes to sustainability. All businesses in a capitalist economy are subject to Schumpeter’s perennial gale of creative destruction: “We can have sustainable economic growth, but if we do, then nothing is sustainable at the level of the individual business,” McLean writes. On the other hand, Edmans is a self-described sustainability advocate. Far from blinding him to problems arising out of concept of sustainability, Edmans says that he seeks out well-informed critiques and views disagreement as valuable.
Twenty years of research have taught Edmans the lesson of rigorously testing claims. May Contain Lies is elegantly structured around an ascent up the ladder of “misinference,” an ideologically neutral term that does not give off the stench of censorship that often accompanies usage of misinformation and, especially, disinformation:
A statement is not fact.
A fact is not data.
Data are not evidence.
Evidence is not proof.
When it comes to claims about ESG, Edmans provides examples that suggest that the book’s title is underdone. It’s a pretty safe bet that a pro-ESG statement will contain lies, a carve-out being made for best employee-rated companies, which Edmans’s research shows are associated with stronger stock-market performance. Edmans relates that a House of Commons committee asserted that an academic paper found that high wage disparities damage corporate performance, despite Edmans telling the clerk to the committee that the conclusion had been from a preprint that, post–peer review, came to the opposite conclusion.
Then there is the case of the “world-famous” investor who invites Edmans to partner in a new fund focused on pro-gender-diversity companies—if he could come up with supportive research. Edmans and a colleague crunch 24 relevant measures; 22 are negatively associated with company performance; one has a statistically insignificant relationship, leaving only one (fewer media reports on diversity controversies are linked to stronger corporate performance). Six months later, the investor launches a diversity fund backed by other research claiming that female-friendly firms perform better. Data mining, Edmans says. Even by Wall Street standards, pushing ESG investment products demands unusual levels of cynicism.
Edmans’s guiding star is falsifiability: “The only way to support your theory is to try to disprove it…. [F]inding out what’s wrong is the only way to find out what’s right.” Missing, though, is the bigger picture in which opinion diversity is suppressed, and attempts at falsification, or even modification, of dominant consensus narratives are dismissed as actions of bad actors.
Edmans rightly stresses the necessity of having a scientific culture: “an environment where people put out bold and innovative ideas, actively seek dissenting opinions.” On climate change, such a culture does not exist in science or finance. In 2022, Stuart Kirk, head of sustainability at HSBC, gave a presentationarguing that investors did not need to worry about climate change. “The speech did an important service by providing a contrasting opinion,” Edmans writes, while acknowledging that performing this valuable service cost Kirk his job. It is left to Tice to draw the conclusion that Kirk’s termination shows that no one on Wall Street is free to speak out against sustainability “for fear of being personally attacked and likely fired or calling down the ESG gods on their firm.”
Edmans uncritically cites the famous 97% scientific consensus on climate change, which, Tice shows, was originally derived from a sift of climate research papers, two-thirds of which expressed no opinion on anthropogenic climate change. Sir David Attenborough’s warning that climate change is our greatest threat—greater than pandemics and nuclear war—is “not clearly incorrect,” Edmans says. Neither is it obviously correct; yet Edmans offers no means of choosing between these two mutually exclusive speculations about the future. Fact-checking, which Edmans suggests elsewhere, won’t do. Facts exist only in the past. There is no such thing as a future “fact,” a word derived from the Latin factum, meaning “thing done,” the past participle of the verb facere, “to do.”
One way of assessing the credibility of statements about the future is to examine the track record of past predictions against what actually happened. In 1953, Sir Richard Doll, one of the pioneering epidemiologists who uncovered the link between tobacco smoking and lung cancer, predicted that in 1973 there would be 25,000 lung cancer deaths in Britain. In fact, there were 26,000. The science of smoking and lung cancer had passed a sharp predictive test with flying colors.
It is reasonable to put greater weight on the science behind a forecast that under-predicts a large rise and to put less reliance on the science that over-predicts. Such is the case with climate science. A year after the 1988 Toronto climate change conference, which declared the danger of climate change second only to a global nuclear war, a Commonwealth group of climate experts produced a 140-page report in which they made a supposedly conservative prediction of global temperature increase of 0.24°C–0.48°C per decade. This compares with an average rise of 0.21°C per decade derived from the Met Office’s global temperature data setfrom 1989 to 2023 (five-year trailing average) and a linear warming trend from January 1979 to March 2024 in the satellite temperature record of 0.15°C per decade, implying that the Commonwealth experts’ forecast ran 1.7–2.4 times hotter than observations.
No reasonable person could claim that in the 36 years since the Toronto climate conference, humanity has experienced anything close to the death and destruction of a global nuclear war. As Tice points out, the number of disaster-related deaths globally has dropped by a factor of ten over the past 100 years. In terms of lives lost, no recent natural disaster has been as devastating as the central China flood of 1931, in which as many as 2 million people lost their lives and affected the lives of 52 million more. Nonetheless, 36 years after the Toronto conference, climate change is portrayed as a catastrophe of existential proportions, one still lurking over the horizon, despite a near-contemporaneous temperature forecast running far ahead of observed warming and even upgraded to being more destructive than nuclear war.
It’s not only temperature forecasts that were overheated. Six years ago, Manhattan Contrarian Francis Menton posted a catalog of failed climate tipping-point predictions. In 1988, the year of his famous congressional testimony, NASA climate scientist James Hansen told a journalist that Manhattan’s West Side Highway would be under water in either 20 years or 40 years (the record is unclear). In 2018, ten years after or ten years before the expiry of Hansen’s prediction, Menton went down the highway. To no one’s surprise, except possibly Hansen’s, “the water didn’t appear any closer to swamping it than it was back in 1988.”
Despite the impacts of climate change being far less severe than initially believed nearly four decades ago, climate change has to be catastrophic to justify the profound (and unachievable) economic and societal transformations demanded by net zero. Were people to start believing that its effects are mild or even benign, climate change’s potency to move policy mountains would evaporate. For this reason, querying the catastrophist narrative is not permitted. It’s here that Edmans’s belief in the importance of opinion diversity and actively seeking dissenting views runs into the over-heated reality of today’s world.
As a newspaper reader, Edmans subscribes to both the conservative DailyTelegraph and the left-wing Guardian. Twinning opposing op-eds is the formula behind RealClearPolitics (RCP) that publisher David DesRosiers sees as an antidote to polarization and hyper-partisanship. This led to RCP’s blacklisting by the Global Disinformation Index (GDI), a British NGO, which last year labeled RCP a high-risk news site for disinformation (the author is a senior fellow of a foundation that works with RCP).
GDI describes its role as disrupting the business models of news and opinion sites that it deems disseminators of disinformation. Because climate catastrophe is a non-fact that belongs to the category of an unverifiable speculation about the future, fact-checking climate change quickly morphs into opinion censorship. Thus, GDI’s definition of disinformation encompasses what it calls “adversarial narratives,” i.e., opinions—whether or not supported by scientifically sound analysis—that it disagrees with.
The weaponization of information was discussed by Dr. Scott Atlas, who served as President Trump’s scientific adviser on Covid for part of 2020, in a recent interview with PragerU’s Marissa Streit. What he has to say about censorship has a direct read-across to climate. Censorship worked, Atlas told Streit. Dissenters were demonized, and a cancel culture blocked people from speaking and blocked people from hearing. “The solution to misinformation is more information. There is no one who should be trusted with the power to determine truth versus not.”
Atlas also spoke of the funding webs that distort academic research in a pattern similar to that in climate science. The federal government, in the form of the National Institutes of Health (NIH), is the main funder of medical science. A cabal of powerful, politically connected people are chairs of departments in medical schools and also reviewers or editors-in-chief of medical publications. There’s an added twist: in response to FOIA requests, OpenTheBooks found that individual NIH employees received $325 million from the pharmaceutical industry over an 11-year period, which looks very much like legalized corruption.
Atlas and Edmans offer similar advice on what Atlas calls a “crisis of trust,”Atlas telling Streit:
“We now know the responsibility is on us as individuals in a free society to know what we’re talking about; to go investigate the source and the data because the era of trusting people solely on the basis of their credentials is over … They’re incompetent. But also, they’re not to be trusted. They manipulated the public instead of g[iving] us information and let[ting] us decide.”
Unsurprisingly, GDI holds the opposite view. In a February 2022 interview, Daniel Rogers, GDI’s cofounder and executive director, speaks of the societal function of information that requires deference to politically approved science:
“People have been convinced through the online disinformation ecosystem not to get vaccinated, becoming eventually sick and causing more harm. In that sense, while the number of websites acting as purveyors of disinformation isn’t that big, it’s an enormous problem in terms of impact, to the point that it poses a threat to democracy…. This is a true cultural malignancy.”
Rogers’s is an authoritarian, top-down model of information dissemination and control. Yet, almost in the same breath, Rogers expresses alarm that “around the world, authoritarian regimes are increasingly coming into power, which I see as a direct result of the collective information environment poisoned by these toxic business models.” He might as well have been talking about GDI as a toxic business model. In a crisis of trust, it is organizations such as his that act as malignant nodes in the spread of distrust.
Ultimately, the crisis of trust is a crisis of civilization. In May Contain Lies, Edmans recounts an experiment in which subjects are invited to drink apple juice from a bedpan that they know is perfectly clean; 72% of them flatly refuse. This is rational behavior. Heuristics, or rules of thumb, obviate thinking and enable us to live fuller lives. And, as McLean shows, trade is a supremely human activity. Trade enables specialization, and specialization enables the development of knowledge expertise. We all lose when expertise is discredited by being politicized and harnessed to a public policy agenda.
A necessary condition for restoring trust in expertise is free expression by experts and nonexperts alike free of intimidation. This condition was absent during the pandemic and continues to this day. It has been absent for many years in discussions on climate change, as both Stuart Kirk and climate scientist Judith Curry, drummed out of her position at Georgia Tech, can testify.
Despite the weight of the forces arrayed against them and the power of climate catastrophism to silence dissent, opponents of ESG and stakeholder capitalism have succeeded in checking its advance. True, the battle is lost in the EU and, for the time being, in Britain, but the fact that the CEO of the world’s largest investment manager refrains from using the word “ESG” says something, as does the withdrawal of a number of large financial institutions from climate action groups. The two Republican SEC commissioners remind its chair of the limits of the authority delegated to it by Congress (Hester Peirce: “We are Not the Securities and Environment Commission - At Least Not Yet”) – and Scope 3 emissions fall away from the SEC climate disclosure rule. ExxonMobil has filed a suit against Follow This, the climate activist that BlackRock, Vanguard, and State Street had supported against Chevron management, and publicly states that it does not care about growing shareholder value.
Financial markets speak in prices. Tice points out that in 2022, the S&P 500 Energy subindex rose by 59.05%, while the broader equity market sank by 19.44%. As McLean demonstrates, if there is any free lunch in investment, it is diversification by lowering risk but not returns. By restricting their universe of investment possibilities, ESG investors increase risk without improving their chances of return. Investors have noticed. The battle to save shareholder capitalism can be won. These three books help bring that victory closer.
My advice? Read them.
Rupert Darwall is a senior fellow of the RealClearFoundation and author of The Folly of Climate Leadership: Net Zero and Britain’s Disastrous Energy Policies.