The ESG movement—Environmental, Social, and Governance—achieved the rare feat of moving from business schools and boardrooms into mainstream public and political discourse. What began as a technical framework for evaluating firm-level risk has, over time, evolved into a sweeping set of expectations about what corporations owe not only shareholders but also society at large. In that evolution, ESG has taken on meanings far beyond its original analytic purpose, becoming a vehicle for advancing broader social priorities through financial markets.

　　In recent years, however, the concept has faced mounting scrutiny. Even prominent advocates, such as BlackRock CEO Larry Fink, have begun to distance themselves from the label, reflecting a broader shift in how ESG is perceived and discussed. That shift is the result of the growing discomfort with the gap between how ESG is described—as a neutral tool for managing long-term risk—and how it is often deployed in practice.

　　ESG investing lets financial managers use other people’s money to push their own values instead of letting individuals decide how their own money is invested. These proxy advisors wield significant influence over corporate governance by guiding how institutional investors vote their shares. Their recommendations can effectively standardize ESG priorities across vast swaths of the market, often without direct input from the underlying investors.

　　Because many institutional investors rely on these recommendations at scale, proxy advisors can act as de facto arbiters of what counts as acceptable corporate behavior, embedding ESG criteria into governance decisions even when ultimate beneficiaries are unaware. Research has shown that proxy advisory firms may incorporate ESG considerations into voting guidance in ways that do not always align with shareholder value, underscoring the complexity—and controversy—of their role.

　　What the reaction against proxy advisers’ activism proves is that ESG isn’t investing aligned with people’s values. It is, rather, investing aligned with someone else’s values, using other people’s money. It is precisely the opposite of what our financial system is intended to do.

　　We suspect, though, that reports of the demise of harnessing finance to serve social purposes are premature. Socially responsible investing preceded ESG, and recent converts to the cause are unlikely to give up. The European Union’s Corporate Sustainability and Due Diligence Directive (CSDDD), for example, demonstrates that ESG still impacts law and business practice, even if its adherents are pursuing their goal more surreptitiously.

　　So, we should continue to dissect ESG’s implications for our economy. Indeed, ESG persists precisely because it adapts, shifting from voluntary branding to regulatory embedding when necessary. What appears to be retreat is often repositioning. Big investors like BlackRock, State Street, and Vanguard still care about ESG, and, unfortunately, companies need to take it seriously—because if they don’t meet these investors’ expectations on ESG issues or disclosures, those investors might vote against company leadership or support shareholder challenges.

　　Don’t mistake a rebrand for a retreat.

　　That makes it worth asking a question its proponents would rather you not: Is ESG actually voluntary?

　　We asked that question because some voices in policy circles argued that ESG was a libertarian idea, a market-based approach to solving social problems that conservatives and free-marketers should embrace. Yale Law Professor Jonathan Macey lent that claim some academic credibility in a 2022 paper.

　　Macey’s argument rests on the premise that ESG represents a movement away from reliance on government and toward private ordering, suggesting that investors and firms can address social problems through voluntary coordination rather than regulation. In this telling, ESG is not coercive but expressive, an extension of investor preference into the marketplace.

　　We worried the argument was gaining enough traction to muddy the waters. So we decided to push back by publishing a critique in the Emory Corporate Governance and Accountability Review. The core of our objection is simple: Whatever ESG’s surface appeal as a voluntary, market-driven movement, the reality is markedly different. Our critique emphasizes that the institutional structure of modern finance—characterized by intermediation, delegation, and concentrated decision-making—undermines the claim that ESG reflects genuine individual choice.

　　To be fair, ESG can be voluntary. If you want to put your own money into an ESG-weighted portfolio, you can. Plenty of funds are upfront about their goals, and investors who choose them know exactly what they’re signing up for. Companies can tout their environmental or social credentials. Groups fearing climate change can even purchase fossil fuel deposits and simply leave them in the ground.

　　While ESG is typically promoted as empowering, it is frequently carried out in ways that lessen individual agency.

　　These are genuine expressions of personal values achieved through voluntary choice—and there’s nothing wrong with any of that. In fact, such examples signal the strongest case for ESG as a legitimate market phenomenon: individuals making informed decisions about how to allocate their own resources in accordance with their beliefs.

　　But that’s not what most of the ESG movement is actually about. A look under the hood, more often than not, reveals coercion. And that coercion is not always overt. It often operates through institutional channels that obscure who is making decisions and on whose behalf.

　　Most of the trillions of dollars invested under the ESG banner don’t come from idealistic individuals putting their money behind their values. They come from public pension funds: money that belongs to teachers, firefighters, and other public employees who contributed their earnings over entire careers of public service. Professional asset managers typically manage these funds, exercise broad discretion, and thereby create a separation between ownership and control that complicates any claim of value alignment.

　　Those workers never signed off on having their savings redirected toward approved social causes. Asset managers make those calls without explicit consent from the people whose money is at stake. And when ESG-driven investment decisions underperform—when boycotting oil stocks and loading up on wind energy doesn’t generate the returns needed to fund retirement benefits—state taxpayers are on the hook to cover the gap. They don’t get a vote either. This dynamic underscores a fundamental contradiction: while ESG is typically promoted as empowering, it is frequently carried out in ways that lessen individual agency.

　　Again, this isn’t investing aligned with people’s values. It’s investing aligned with someone else’s values, using other people’s money.

　　ESG isn’t just about where money flows, but about what fund managers do with the companies they invest in. Major players like CalPERS and, until recently, BlackRock, have used their shareholder clout to push companies to adopt ESG policies—not only in dedicated ESG funds but also across entire investment portfolios. The investors in those funds never consented to their money being used as a lever for social change inside corporate boardrooms. In this sense, ESG operates not only as an investment strategy but also as a governance strategy, one that leverages ownership stakes to influence corporate behavior.

　　Perhaps the biggest myth about ESG is that it’s a private-sector phenomenon. The movement traces back to the United Nations, with its origins in the government sector. Today, government rules drive much ESG. Civil rights law pushes corporate diversity mandates. Know Your Customer regulations are behind many of the bank-account closures that draw public outrage. Far from emerging organically from market demand, ESG has been shaped by a complex interplay between public institutions and private actors, blurring the boundary between voluntary initiative and regulatory expectation.

　　The EU’s CSDDD takes this to its logical extreme, mandating sustainability due diligence across corporate supply chains by force of law. That’s not a voluntary movement. The regulatory compliance costs will ultimately be borne by consumers and workers. When ESG principles are codified into law, the claim that they represent market choice becomes even more difficult to sustain.

　　ESG took off in 2017, after the United States withdrew from the Paris Climate Agreement. For activists frustrated that democratic processes weren’t delivering the outcomes they wanted, ESG became a workaround. Deny investment and insurance to fossil fuel companies and pressure businesses to adopt diversity and climate policies that voters and legislatures rejected. In this way, ESG can function as an alternative pathway for achieving policy objectives that operate through capital markets rather than electoral politics.

　　The goal was to conscript private businesses into a political agenda, using companies built by others for purposes their founders and owners never chose.

　　So, is ESG voluntary? Sometimes, at the margins. But the center of gravity has always been elsewhere: in pension funds managed without member consent, in shareholder pressure campaigns, and in government mandates dressed up as corporate responsibility.

　　Calling it voluntary doesn’t make it so. As ESG reemerges under new names and new mandates, the public deserves to understand exactly what’s being done with their money, and in whose name. Clarity on this point is essential for investors and for maintaining trust in the institutions that allocate capital and shape corporate behavior in modern economies.