Don’t Take Financial Advice From Ron DeSantis

As Ron DeSantis wages culture war in his bid for the White House, he’s taken aim at a once-obscure target: ESG investments. 

The Florida governor has decried investment strategies with environmental, social and governance goals as “ideological joyrides,” and last month signed a law that bars state officials from making ESG investments or ESG bond sales. Other Republican-led states have followed suit: Utah, Alabama, Alaska, Arkansas, Iowa, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Ohio, South Carolina, South Dakota, Texas and West Virginia have passed similar measures, sometimes pulling billions of dollars from the massive investment firm BlackRock for promoting sustainable energy investments.

Conservative critics say giving value to moral or even scientific imperatives goes against the profit principle at the heart of the free market; for them, it’s foolish at best, and at worst an effort to impose a “woke” agenda.

The core of this policy strikes at what goes on balance sheets and how we value things. Are environmental concerns, social well-being and good government assets or liabilities? Or do they simply not matter amid the pursuit of profit? 

They certainly can affect the bottom line: It’s been more than 30 years since the ethical investment pioneers Amy Domini and Peter Kinder showed that ESG considerations bring higher returns over longer periods of time. But the issue is much older than that.

The idea that moral concerns have value — and that money should be invested according to them — goes back to the origins of capitalism. It’s also an approach steeped in American history.

In the 13th century, Saint Francis of Assisi and the Scholastic thinkers believed that all profit had to be measured with the concept of the “just price” — exchanges had to be mutually beneficial and no one could take an unfair profit from others.

Even beyond the just price, the medieval, Catholic inventors of capitalism believed that profit had to be balanced by morality. They were influenced by the ideas of the Fathers of the Church, that profits should be given to the poor and that those who died rich had as much of a chance of going to heaven as a camel did of going through the eye of a needle. Thus, famous merchants such as Francesco Datini, on his death, gave all of his vast fortune to the poor of his Tuscan city of Prato — 100,000 florins, something akin to the annual tax receipts of the king of England. Datini (1335-1410) would close his account ledgers with the words, “For God and Profit.” For Datini and many like him, it was not the other way around.

Medieval Christian thought was deeply focused on ESG-like concerns. Ambrogio Lorenzetti’s famous frescos to Good and Bad Government in Siena (painted in 1338-1339) depicted how good government, through constitutional republicanism and the rule of law, brought prosperity and thriving, full markets; dictatorship, meanwhile, was devilish and brought plague and poverty.

Fast forward to 1540 Humanist Flanders. In the painting Two Tax Collectors, the Dutch workshop of Marinus van Reymerswaele shows two merchants who have gone mad because they focused too much on money and not enough on the moral cost of pure profit-seeking. Without a moral component, van Reymerswaele and other leading Flemish masters argued, finance was an empty and possibly dangerous undertaking.

Holland was the richest country per capita in Europe, and home to the invention of the modern stock exchange and publicly traded companies. It also was a society whose wealth came from significant environmental management, as 40 percent of the Dutch Republic was below sea-level. Its rich farmlands were drawn from the sea through its polder engineering systems of levies, seawalls, dikes, sluices and managed lakes. The Dutch water boards, which governed water management, depended on precise accounting and a culture of auditing to make sure that public finance could manage the natural world. Public awareness of the value of water management was high, and leading thinkers and artists warned that thinking only of profits was hubris akin to madness or folly.

By the 17th century, the Jesuits not only kept accounts to manage their religious order, also known as the Company of Jesus, but they pioneered spiritual account books in which Jesuit priests would write their spiritual assets and liabilities and weigh them out. They saw morals as having real value, and spiritual accounting was part of a wider management process within the teaching, scholarly and missionary religious order that sought both financial and spiritual balance for the institution and its members. It was a way to pursue salvation, but also to compete with reform Protestantism by promising salvation through good personal management.

But connecting finance and morality was not limited to Catholics. So-called "low church" Protestants in particular made accounting part of their prayer practice. This approach would also become common among Dissenting Protestants of the 18th century, who also ran Britain’s many accounting, or “writing schools.”

Benjamin Franklin wrote his autobiography on the debit side of an accounting ledger book, in a sign that he saw his life as leaving something to be owed. Like the Jesuits before him, Franklin kept moral account books, in which he tallied his own virtues and failings in columns. “In its proper column,” he wrote in his autobiography, “I might mark, by a little black spot, every fault I found upon examination to have been committed respecting that virtue upon that day.” Franklin too believed in personal morality through accounting, in anticipation of God’s judgment.

In 18th century France, the public was fascinated with how morals, accounting and financial values mixed, with people clamoring for the publication of national balance sheets so they could understand how their taxes were used and how big the national debt was. In 1781, King Louis XVI’s minister of finance, Jacques Necker, published his bestselling pamphlet on the country’s finances, the “Compte Rendu,” or accounts rendered. In it, he explained the morality of state expenditures, noting with a critical eye how badly the royal kitchens were managed. With reference to ancient Rome, he noted that his own budget surplus represented a political “virtue.”

The idea that morality brought value permeated thinking in the 19th century as well. In “A Christmas Carol,” Charles Dickens warned that account books that only reflected greed and profit were like chains that could torture Ebeneezer Scrooge until he found righteous generosity.

Fascinated by balance sheets, Charles Darwin also kept a journal in which he tallied aspects of his personal life for both utility and morals, balancing sick days against healthy ones and hours spent on work. He even noted the hours he and his wife spent playing games.

Moral accounting and economic concerns were embedded in the American tradition and were central to the philosophy of Henry David Thoreau, the American transcendentalist and pioneering environmentalist who resisted taxes, believed in civil disobedience and opposed slavery. He was famous for his 1854 work, “Walden; or, Life in the Woods,” in which he lived two years on Walden Pond in Concord, Mass., and called for a return to nature and self-sufficiency. Thoreau’s project in “home economics” thoroughly detailed all his living expenses and earnings from selling his farm produce. Thoreau consciously accounted for what he believed would make a moral life, calculating the bare minimum needed for an ascetic, spiritual existence in the wilderness away from immoral urban living.

And in more modern times, the U.S. government has not shied away from shaping commerce because of moral concerns and national interest.

Even before the United States entered World War II, the government imposed a policy of sanctions, the economic Blockade of Germany (1939-1945), to undermine the Nazis. During the Cold War, all trade between the U.S. and the Soviet Union was heavily regulated to protect American economic and political interests. While some companies wanted to sell jetliners to the Russians, Washington forbade it.

The approach culminated in President John F. Kennedy’s embargo against Cuba which prohibits U.S. investment in the communist country. While European and Asian companies trade freely with Cuba, U.S. firms do not. It’s a six-decadelong moral stand against an authoritarian government, and one that DeSantis can get behind; he’s rebuked efforts by the Biden administration to modestly ease sanctions against Cuba.

In the end, ESG is just another name for moral considerations in capitalism. The left may think that’s an oxymoron and the right may see a woke conspiracy, but it’s a notion that has existed since the rise of capitalism in medieval Italy and which has been central to America since its founding.

Free markets often involve governments regulating and intervening in the economy. However, attempts by conservative politicians to block ESG investments go against the basic principles of democracy and capitalism by which we have the right to spend and invest money according to personal choice, religious and moral freedom, and pursuit of the national interest through legislative consensus, all of which are fundamental to free societies and free markets.