There are many reasons to be skeptical of an environmental, social, and governance (ESG) investing approach. Growing evidence shows that ESG delivers a low return on investment. This concern recently led Vanguard, a trillion dollar asset management firm, to withdraw from ESG funding strategies. And the goals that fall under the E, S, and G categories are often at odds, which led the Economist to say ESG “risks setting conflicting goals for firms.”

ESG’s low ROI and contradictions are major drawbacks, but even worse, the social goals which fall under the “S” in ESG pose a direct threat to the most fundamental American freedoms.

What the “S” Stands For

You may wonder: shouldn’t corporations care about their impact on people?

The short answer is yes. As Viewpoint Diversity Score’s Jeremy Tedesco and Daniel Cochrane write in a recent article, “no organization operates in a moral vacuum.”

But instead of offering solutions to companies who seek to fulfill their social obligations, the Social component of ESG invokes these duties as part of a bait and switch, replacing good aspirations with a partisan agenda that curtails the free speech and religious freedom essential to a free society.

As an article in Stanford Social Innovation Review frames it, ESG’s Social category covers “social issues, labor standards, human rights, social dialogue, pay equity, workplace diversity, access to health care, racial justice, customer or product quality issues, data security, industrial relations, or supply-chain issues.” And as a report from the Attorney General of Nebraska observes, many of these are already legally protected:

Many of the topics addressed under the “S” are already regulated by federal and state law. Indeed, federal laws administered by the Occupational Safety and Health Administration (OSHA) already set certain labor standards. And myriad federal, state, and local laws outlaw discrimination in the workplace. ESG advocates seek to use the “S” to advance causes not addressed by the laws, presumably because there is insufficient political will or there are legal barriers to government action such as the First Amendment.

While the list of issues ESG claims to cover is broad, companies increase their “S” ratings through adopting Diversity, Equity, and Inclusion (DE&I) trainings and practices, committing to battling so-called “hate speech” and “misinformation,” and expanding healthcare policies to cover abortion. And across the board, these policies are used to usher in an alternate vision of society with new definitions of human rights and human flourishing, and to censor anyone who objects.

Redefining and Dividing

The redefinition of good terms and quashing of debate is especially present in DE&I programs that major corporations adopt to boost ESG’s Social ratings. By and large, the very terminology DE&I employs promotes a new set of ethics. As Dr. Matthew Spalding, Vice President of Hillsdale College, recently wrote at the Wall Street Journal:

Diversity is no longer a term to describe the breadth of our differences but a demand to flatter and grant privileges to purportedly oppressed identity groups. Equity assigns desirable positions based on race, sex and sexual orientation rather than character, competence and merit. Inclusion now means creating a social environment where identity groups are celebrated while those who disagree are maligned.

Corporate DE&I practices and employee trainings favor and disfavor people based on skin color and identity, reinstating racial preferences that the Civil Rights Act was designed to prevent. Grouping people according to these characteristics promotes division instead of respect, discouraging people from forming friendships based on shared goals and values.

DE&I practices also promote radical gender ideology by promoting the use of preferred pronouns, which pressures employees to validate claims about gender they don’t believe. In these cases, DE&I policies attack and replace long-standing definitions of natural equality before the law and basic truths about what it means to be male and female.

Censoring Speech

Tech companies in particular seek to raise ESG Social ratings through policies that ban so-called  “misinformation” or “hate-speech.” When companies position themselves as the arbiters of truth, they trample freedom of speech for their customers, employees, shareholders, and fellow citizens.

These policies often result in politically motivated censorship. Recent documents show evidence that social media companies have worked hand-in-hand with the government, using misinformation policies to crack down on discussions and censor disfavored speech, even for posts that were factually correct. And as seen on Twitter, users and employees are shamed or punished for “hate-speech” if they speak up against DE&I practices or simply affirm timeless beliefs about hot-button cultural issues.

A growing number of major financial institutions have gone as far as debanking individuals and groups for what appears to be politically biased reasons, simply because they express or hold what the company considers “wrong” views. JPMorgan Chase, Wells Fargo, and other large financial institutions have been pressured to deny services to the fossil fuel industry and firearms manufacturers, but the threat of de-banking on political grounds also extends beyond these issues. For instance, Chase recently closed the account of a religious liberty focused nonprofit group headed by former U.S. Ambassador Sam Brownback, without notice. ESG policies encourage these sorts of bad-faith practices, which punish those who don’t align with far-left ideological aims.

In their internal practices, companies who seek to align with ESG’s “S” agenda are marginalizing employees who hold disfavored views. Attorney Robin Keller saw what she described as her “unblemished 44-year career” in corporate law come to an abrupt end for expressing her opinion on the U.S. Supreme Court’s decision in Dobbs v. Jackson Women’s Health Organization. 

Likewise, Jennifer Sey, former Global Brand President at Levi’s, was shamed and called “racist” in company-wide meetings and eventually was forced out of her role for speaking up against COVID school lockdown policies on her personal social media channels.

Both Keller and Sey discovered that most companies who claim to promote tolerance and diversity don’t accommodate diversity of opinions and beliefs, and don’t tolerate anyone who dissents from the prevailing orthodoxy. And unfortunately, their experience is part of broader trend. 

As a recent survey commissioned by Alliance Defending Freedom and conducted by Ipsos shows, 3 out of 5 respondents expect that respectfully expressing religious or political viewpoints would “likely or somewhat likely” carry negative consequences at work, while 1 in 4 say they know someone who has experienced negative consequences for respectfully expressing their religious and political viewpoints.

Overwhelmingly, the survey found that when companies politicize their workplaces by taking divisive stands on hot button social issues, or by punishing employees for their political or religious views, they risk losing employees’ trust as well as the ability to recruit and retain top quality talent. 

Politicizing Healthcare Benefits

Employees’ health and wellbeing in the workplace is important, and many laws already require companies to respect and protect their employees.

But in order to boost ESG ratings and appease some activist shareholders, many companies have expanded their healthcare benefits to directly subsidize abortion and have adopted policies to cover travel expenses for employees to access out-of-state abortions. Companies have also lobbied for abortion and directly opposed pro-life protections in the states.

By funding and advocating for abortion rather than real forms of maternal support, companies use their power in society to pit a woman against her child and threaten unborn children’s fundamental human right to life.

And when companies adopt pro-abortion policies and lobby against pro-life laws, they send a clear message to everyone that abortion is the company-sanctioned way to handle unexpected pregnancy, and quash debate and good-will objections. This divisive approach is not only unfair to both female employees and their children, but it also marginalizes all employees and shareholders who believe that companies should offer women more support and maternal health benefits, or believe companies should at the very least stay neutral on the topic.

A better solution

We have to ask ourselves the same question as former BlackRock CIO Tariq Fancy: “Do you really want your banker redesigning society?”

The "S” in ESG pressures companies to plunge forward towards a brave new world and steamrolls the free speech and conscience rights that stand in the way. These natural rights are part of the fundamental building blocks of a free, healthy society that can sustain free markets and free exchange. When corporations attack core civil liberties, they undermine the trust and freedom necessary to conduct business.

But there are better paths for C-suite leaders who care about their responsibilities to fellow citizens.

Rather than violating the consciences and fundamental freedoms of their employees and customers, companies can commit to robust protections for viewpoint diversity like an “Off-Duty Civil Rights Policy,” a Product or Service Anti-Viewpoint Discrimination Policy, and a Third-Party Workforce Freedom Policy. Companies can also commit to ethically responsible political advocacy by adopting a “Pledge to Respect Freedom of Expression and Belief through Corporate Advocacy and Political Engagement.”

Companies have a major impact on the public discourse essential to a free society. It’s time for them to reject ESG’s restrictive “S” agenda and enact policies in favor of freedom.