A first tow truck arrived relatively early in the evening, but the driver, mumbling that “This job is impossible!” drove off after looking at the car’s severely damaged wheel. Several months ago, I found myself waiting for a long time by the side of the road for a tow truck. To illustrate why I think this sustainability-themed centralized allocation of capital is a bad development, let me tell you a story. This commandeering of private capital in the name of ESG causes me grave concerns. The parallel, though not identical, standards the United States, the European Union, and the International Sustainability Standards Board (“ISSB”) are developing are more ambitious, complicated, and costly than anything we have seen before in the corporate reporting realm.

This objective, and not concerns about consistency or comparability, is what distinguishes voluntary ESG standards, which have been around for many years, from the mandatory standards that we are increasingly rushing to adopt.

As such, they are meant not primarily to serve investors’ needs but rather to direct the allocation of private capital to further government ends. Indeed, they appear intended to do exactly this: to direct private capital flows.

These standards cannot help but direct the allocation of private capital, especially when they are combined with sustainable finance initiatives designed to encourage financing of favored activities and the defunding of disfavored activities. Today’s ESG-specific standards too often have a different purpose. Some of those factors might today get an ESG label, but we do not need ESG-specific standards to serve investors’ needs materiality-based disclosure standards already do this. Companies, asset managers, and investors always have considered a wide range of factors in deciding how to spend or invest their money. If every jurisdiction directs capital using a single set of standards, poor choices will reverberate through the global economy.ĮSG is an ambiguous term, the depths of which I do not have time to plumb. The third concern, which exacerbates the first two, is the considerable international pressure to converge on a single set of ESG standards. Second, ESG rulemaking, by concentrating capital in favored assets, could become a source of systemic instability. First, I am concerned that ESG standards, intentionally or not, drive private capital to uses that check the right officially sanctioned ESG box, not where it will best meet human needs and solve societal problems. You will be happy to know, therefore, that I speak only for myself, and not necessarily for the US Securities and Exchange Commission (“SEC”) or my fellow commissioners. I particularly appreciate your welcoming me to address environmental, social, and governance (“ESG”) issues despite my heterodox – some might say heretical – views. Thank you for the chance to address you this morning.

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