The era of ESG and DEI finally seems to be waning, thank god! So why can’t Britain also let Woke Capitalism go, asks Fred de Fossard.
After riding high for many years, the twin tenets of “woke capitalism” – environmental, social and governance (ESG) principles and diversity, equity and inclusion (DEI) rules – are faltering. Large American businesses, the engine room of these ideas, have started abandoning diversity targets, and are moving away from promoting ESG-compliant funds. This has been aided by a political backlash in the United States where many state legislatures have passed anti-ESG laws.
Blackrock, for example, supported only four per cent of ESG resolutions proposed in its portfolio in the year to June 2024, down from a massive 47 per cent in 2021. As the Legatum Institute paper, Woke Capitalism: Diagnosis, Prognosis, and Cure, published this summer, showed, the sheen has come off ESG in the era of higher energy prices and higher interest rates.
Indeed, it is hard to support policies which make it harder for defence companies to raise capital when the West is spending money to support Ukraine and which threaten Britain’s own energy security by driving money away from North Sea oil and gas.
In light of this, one would hope that government policy reflects this reality. Unfortunately that does not seem to be the case. While we have a government and bureaucratic blob which claims it cares about economic growth, it remains wedded to the failed ideas behind woke capitalism.
Take financial services regulation as one example. While the Financial Conduct Authority (FCA) has introduced deregulations to make listing in London more competitive, it is also going full steam ahead on imposing ESG and DEI, just as corporates finally start to question it. In an attack on freedom of association and private enterprise, it has proposed mandating diversity-related reporting requirements, and potentially hiring quotas, on FCA-regulated companies.
For a regulator with a remit to promote competitiveness, it is extraordinary that it should mandate such requirements on private businesses, but this is what its recent consultation suggests. If enacted, it would be a serious blow to the City of London and would likely benefit New York, London’s main rival.
The government claims it cares about increasing private investment in the economy. This is nothing new. Prime Ministers and Chancellors of all stripes have said this. But what are we about to get? A mess of contradictions and proposals which will make businesses run a mile. While new changes to financial regulations are being implemented to make it easier for small businesses and infrastructure projects to gain access to capital, businesses of all shapes and sizes are about to be hit with new regulations on working from home, four-day weeks and even racial equality in the workplace. A boon for lawyers and human resources executives, but little else.
The government’s rush for net zero does not include practical ideas like the deregulation of planning and development rules for nuclear power. Instead, it is increasing subsidies for wind farms despite their poor economic case, deliberately destroying the North Sea oil and gas economy and spending taxpayers’ money on a fresh batch of decarbonisation projects under the guise of a National Wealth Fund.
This is not an economic agenda which inspires confidence. It is a combination of the worst aspects of industrial strategy, with a blind commitment to net zero at any cost and retrograde labour market regulations thrown on top. The worst of the 20th and 21st centuries’ economic ideas rolled up together.
While woke capitalism starts to sink on the global stage, the British state is trying to lash the British people to its mast. British regulators and ministers alike seem stubbornly committed to a command and control, socially progressive, economic model which offers little more than compliance cost and bungs for rent seekers. Even the regulatory behemoth that is the EU is having second thoughts about stifling the European economy in progressive red tape.
It is unlikely the current government will change course soon. If it wishes to do so, the solutions are simple: cut back corporate reporting requirements to the financial necessities, as before 2006, and update the FCA’s regulatory principles to exclude DEI and terminate its diversity policies, ensuring it refocuses on economic growth through its existing strategic objectives. These will provide the sort of course-correction necessary to allow Britain’s greatest asset – its people – to flourish.
This article was first published in CityAM
About the author
Fred de Fossard: Director of Strategy
Fred leads the Institute’s parliamentary and legislative work. He is responsible for research on British prosperity, encompassing Brexit opportunities, regulatory and government reform, and economic growth. This includes a long-term legislative agenda required to return the United Kingdom to growth, aided by his expertise in parliamentary and constitutional affairs.
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