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ESG Feeds Inflation, Hurts Economic Growth

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With inflation running at a four-decade high, it’s time to reconsider the idea that the economy will benefit if corporations sacrifice their bottom lines in favor of environmental, social and governance considerations. The truth is that diverting corporate attention away from long-term profitability depresses output and raises prices.

In 2019 the Business Roundtable, an association of large companies’ CEOs, abandoned its longstanding dedication to the idea that the “purpose of a corporation” is to maximize shareholder value. Instead, the group argued, businesses should follow a “multistakeholder” model. If corporate management gave a shifting set of ESG concerns priority over long-term profit maximization, the roundtable believed, firms could create “an economy that serves all Americans.”It hasn’t panned out that way. When companies focus solely on maximizing profits, their principal aim is to produce more at lower cost. Admittedly, some profitability strategies—such as constraining supply—are at odds with maximizing output. But that’s impossible without an organized and powerful monopoly. Even companies with great monopoly power lose that power over time as competitors arise. In a competitive market, corporations serve themselves and consumers by making more for less.ESG investing and the management […]

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