Advocates of investing based on environmental, social, and governance factors, or ESG, promised that it would transform how business performance is measured, to society’s benefit. Yet, far from being revolutionary, ESG is just the most recent manifestation of an old fallacy—that businesses create wealth for their owners but little else of value for society.
When a business makes a profit, its trading partners or stakeholders, including customers, employees, and suppliers, also gain. Yet these gains are ignored by ESG and other rating schemes that claim to measure the...