Shareholders need to protect their investments; employees need to protect their paycheques

In economic downturns private spending on luxury goods tends to abate. Two predictions follow from that, given the economic storm clouds now on the horizon. First, there should be lower spending by investors and consumers on ESG (environmental, social and governance) concerns. And, second, there should be lower costs in the form of reduced productivity incurred by allowing employees to work from home. When times get tougher, everyone sharpens their focus on the bottom line. Investors want to maintain profitability; consumers demand affordability; employees do everything they can to keep their paycheques.

ESG’s many advocates may argue it’s a necessity, not a luxury. But where do we find, for example, the most enthusiastic climate change activism? In World Economic Forum meetings, in circles with the greatest political and financial means, among privileged undergraduate students from upper-class families, and so on. If people living in the poorest communities with the highest crime rates, worst schools, and most ramshackle housing have regularly been putting on grand displays to showcase their solemn concern about whether by 2130 the global average temperature might rise by an additional 0.25 degrees Celsius, it has not been widely reported.

What is true of climate activism is also true of many other fashionable social campaigns. In recent years many large corporations have bent the knee to progressive social causes, but as Jim Geraghty recently wrote in the National Review, with rougher economic times ahead attention may turn to the compelling economic facts that “The woke customer base is just too small, and the non-woke or anti-woke customer base is just too large to ignore or antagonize. Woke employees who insist their company’s leadership take outspoken and controversial stances can be denied.”

An important distinction needs to be made: woke corporations are certainly focused on social issues but corporations focused on social issues do not have to be woke. Indeed, if a corporation expends resources to battle woke doctrines, it too is pursuing ESG as it sees it. Clearly then, one problem with ESG is that people’s ideas of social good differ and often contradict. That is an argument for another day, however. For now what’s important is that whether the cause is climate change, wokeism, anti-wokeism, or anything else, the problem with ESG that makes it generally unpopular with ordinary investors, consumers, and employees is that it involves financial sacrifice. Someone has to pay for it. When economic times are tough, fewer people have the means or willingness to do so.

Even in the best of times, however, how much demand there really is for corporations to pursue ESG is questionable. As even ESG advocates admit, much corporate activity labeled as ESG is really profit-seeking in the form of greenwashing or window-dressing. Beyond that, much more of it arises in response to or anticipation of government diktat. Take McDonald’s Canada, for example, whose market value in a highly competitive industry is based largely on its reputation for customer service and affordability. Was its decision last year to burden its customers with abominable paper straws really made out of a desire to “protect the planet,” as it says? Was there a groundswell of consumer demand for this distasteful and costlier paper product? Or was this otherwise unthinkable imposition a response to the Liberal government’s proposed ban on single-use plastics?

Like ESG, remote work is a luxury good with dubious long-run net benefits even when labour market conditions are favourable to employees. With governments spraying money everywhere during the pandemic, including paying people large sums not to work and subsidizing businesses for declining revenue, some inefficient and unproductive practices like remote work may have made some short-run sense. Those days are past, however. Rougher economic waters and high inflation mean businesses must look for ways to control costs and do more with less.

Stories of hiring slowdowns, freezes, and even layoffs are increasing. Shareholders need to protect their investments; employees need to protect their paycheques. That means more focus on productivity, less indulgence of workers in luxury benefits like not showing up to the office, and less time and fewer resources devoted to collateral social and environmental objectives. When the going gets tough, people get down to business. Other things get put on the shelf — in the private sector, at least. In government, expect profound climate concern and the woke agenda to carry on unabated.

Matthew Lau is a Toronto writer.

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