Instead of ESG and DEI, how about value creation, justice, and independence?

As the cost of everything has escalated, from energy to raw materials to labor to financing, and stock performance has deteriorated, investor and corporate enthusiasm for ESG (environment, social, and governance) and DEI (diversity, equity, and inclusion) metrics and programs has waned. After examining the cost-effectiveness of their ESG and DEI programs and facing criticism, many companies have cut back.

For example, Elon Musk cut the number of Twitter’s DEI staff from 30 to two when he took over. Asset managers, such as BlackRock, have closed ESG funds. As for environmental goals, many companies have recognized not only the insufficient availability and reliability of renewable fuels, but the prohibitive cost of transitioning away from fossil fuel energy.

Many commentators lament the declining investment in ESG and DEI, fearing that catastrophic climate change and accelerating social injustice will ensue. They urge corporations to balance ESG and DEI initiatives with profit making (which ignores that no objective criterion for such balancing exists).

Such fears, as well as the need for ESG and DEI, are unfounded. Many experts have shown that we are not headed for a climate catastrophe: the CO2 levels are at their low end, the global temperature increase (attributable to human activity) in the last 170 years is only 1 degree Celsius, and we are capable of adapting to changes in climate. As for injustice, by evaluating people by their race or minority group status, ESG and DEI programs have not diminished it; we need different guidelines to deal with everyone justly.

Rather than a cause for lament, abandoning ESG and DEI can help business to refocus on its proper role in society: producing and trading material values that our lives depend on: energy to heat our homes and to power factories and transportation, housing, food, and all other products and services that make life more comfortable, convenient, and enjoyable.

Such business functions do not require guidance by ESG and DEI but by principles that enhance flourishing for all: value creation, justice, and independence.

Value creation is the core principle of business sustainability. A business can only sustain itself by creating products and services that provide value to its customers (for which they are willing to pay more than the cost of producing and trading).  Only this way does the business ensure value creation (a return on their investment) for the company’s shareholders.

Creating and trading material values also requires that these activities don’t cause demonstrable harm to anybody (which rules out deception, fraud and exploitation, polluting others’ property, including air and water).

The principle of justice guides business (decision makers) to deal with others as traders, as explained by Ayn Rand, exchanging value for value, by mutual consent for mutual benefit. Companies trade salaries, wages, and bonuses for their employees’ productive input to their value creation. With suppliers, companies trade money for materials, components, and services. They trade products and services for payments from their customers. These trades are just when voluntary and values are exchanged for value: trading partners are compensated based on the value they offer.

Justice also requires evaluating people objectively, based on character and conduct, granting what they deserve: only trading with those who deserve it, based on the value they provide, and avoiding and dismissing those who don’t.

The principle of independence guides business (decision makers) to focus primarily on reality instead of following others blindly – whether investors, customers, employees, regulators, the media, or any pressure group. Independence means always asking whether any claim is true and challenging and rejecting claims not supported by verifiable evidence.

Independence, according to Rand, means thinking for oneself, based on facts, and acting accordingly. This is a crucial principle in business because it is the foundation of innovation that fuels the continual improvement of the products and services and their production processes, leading to increasing wealth and prosperity.

Not all companies follow these principles, to their detriment. Destroying value instead of creating it, through deception, fraud, or exploitation is unsustainable because not only is it immoral but illegal. Companies that engage in fraud or coercion will be prosecuted and punished. Not trading value for value, even when not illegal, is unjust and leads to a loss of customers, employees, suppliers, and profits. Giving up first-handed adherence to reality is similarly unsustainable, resulting in copy-cat investment in such value-depleting programs as ESG and DEI that violate the principle of justice.

Businesses that adhere to the principles of value creation, justice, and independence, benefit not only their shareholders but all those with whom they trade, thereby creating a continual virtuous circle of increasing human flourishing.

Photo credit: veyselkumsanat at Freepik

Instead of ESG and DEI, how about value creation, justice, and independence?

As the cost of everything has escalated, from energy to raw materials to labor to financing, and stock performance has deteriorated, investor and corporate enthusiasm for ESG (environment, social, and governance) and DEI (diversity, equity, and inclusion) metrics and programs has waned. After examining the cost-effectiveness of their ESG and DEI programs and facing criticism, many companies have cut back.

For example, Elon Musk cut the number of Twitter’s DEI staff from 30 to two when he took over. Asset managers, such as BlackRock, have closed ESG funds. As for environmental goals, many companies have recognized not only the insufficient availability and reliability of renewable fuels, but the prohibitive cost of transitioning away from fossil fuel energy.

Many commentators lament the declining investment in ESG and DEI, fearing that catastrophic climate change and accelerating social injustice will ensue. They urge corporations to balance ESG and DEI initiatives with profit making (which ignores that no objective criterion for such balancing exists).

Such fears, as well as the need for ESG and DEI, are unfounded. Many experts have shown that we are not headed for a climate catastrophe: the CO2 levels are at their low end, the global temperature increase (attributable to human activity) in the last 170 years is only 1 degree Celsius, and we are capable of adapting to changes in climate. As for injustice, by evaluating people by their race or minority group status, ESG and DEI programs have not diminished it; we need different guidelines to deal with everyone justly.

Rather than a cause for lament, abandoning ESG and DEI can help business to refocus on its proper role in society: producing and trading material values that our lives depend on: energy to heat our homes and to power factories and transportation, housing, food, and all other products and services that make life more comfortable, convenient, and enjoyable.

Such business functions do not require guidance by ESG and DEI but by principles that enhance flourishing for all: value creation, justice, and independence.

Value creation is the core principle of business sustainability. A business can only sustain itself by creating products and services that provide value to its customers (for which they are willing to pay more than the cost of producing and trading).  Only this way does the business ensure value creation (a return on their investment) for the company’s shareholders.

Creating and trading material values also requires that these activities don’t cause demonstrable harm to anybody (which rules out deception, fraud and exploitation, polluting others’ property, including air and water).

The principle of justice guides business (decision makers) to deal with others as traders, as explained by Ayn Rand, exchanging value for value, by mutual consent for mutual benefit. Companies trade salaries, wages, and bonuses for their employees’ productive input to their value creation. With suppliers, companies trade money for materials, components, and services. They trade products and services for payments from their customers. These trades are just when voluntary and values are exchanged for value: trading partners are compensated based on the value they offer.

Justice also requires evaluating people objectively, based on character and conduct, granting what they deserve: only trading with those who deserve it, based on the value they provide, and avoiding and dismissing those who don’t.

The principle of independence guides business (decision makers) to focus primarily on reality instead of following others blindly – whether investors, customers, employees, regulators, the media, or any pressure group. Independence means always asking whether any claim is true and challenging and rejecting claims not supported by verifiable evidence.

Independence, according to Rand, means thinking for oneself, based on facts, and acting accordingly. This is a crucial principle in business because it is the foundation of innovation that fuels the continual improvement of the products and services and their production processes, leading to increasing wealth and prosperity.

Not all companies follow these principles, to their detriment. Destroying value instead of creating it, through deception, fraud, or exploitation is unsustainable because not only is it immoral but illegal. Companies that engage in fraud or coercion will be prosecuted and punished. Not trading value for value, even when not illegal, is unjust and leads to a loss of customers, employees, suppliers, and profits. Giving up first-handed adherence to reality is similarly unsustainable, resulting in copy-cat investment in such value-depleting programs as ESG and DEI that violate the principle of justice.

Businesses that adhere to the principles of value creation, justice, and independence, benefit not only their shareholders but all those with whom they trade, thereby creating a continual virtuous circle of increasing human flourishing.

Photo credit: veyselkumsanat at Freepik