Citing a Harvard Business School study of 1,800 companies, Sir Ronald Cohen reveals the staggering scale of negative externalities. A third of these firms (600) cause environmental damage equivalent to a quarter or more of their profits, while 250 create more damage than they make in profit, highlighting the financial materiality of impact.

Many well-intentioned 'nudges' are ineffective at a systemic level. For example, defaulting consumers into green energy tariffs doesn't create new renewable energy; it simply reallocates the existing supply to different customers, resulting in no net progress.

The model of pressuring tech companies to go green doesn't apply to major industrial emitters like oil and steel. For them, the cost of eliminating emissions can be several times their annual profit, a cost no shareholder base would voluntarily accept.

The only way ESG investing can effect change is by starving "bad" companies of capital, raising their cost of capital. For the market to clear, non-ESG investors must own those stocks and will only do so if compensated with a higher expected return. Therefore, the ESG portfolio must, by definition, have a lower expected return.

The popularity of ESG investing was a product of the zero-interest-rate environment. Its decline coincided exactly with the return of inflation in 2022, as affordability concerns and the need for energy security immediately trumped abstract social mandates.

Amid political polarization, explicit ESG investing has faded. However, capital continues to flow into energy projects under the more neutral label of "infrastructure." This allows investors to support traditional and transitional energy development while avoiding the controversy associated with the ESG moniker.

Despite record-high commodity prices, mining and energy companies are hesitant to invest in new production. Shareholders, scarred by past value destruction from over-investment, are demanding capital discipline. This investor-led constraint stifles the natural market supply response.

Instead of focusing on marginal emissions cuts, companies should leverage their unique capabilities to solve hard problems. This means acting as early buyers for new green technologies or investing in R&D within their supply chains, creating new markets for the entire industry.

By regulating its clean, high-paying refineries out of existence, California did not eliminate its need for oil. Instead, it now imports dirtier fuel from farther away, losing jobs and tax revenue while increasing its net global carbon footprint—a classic case of unintended consequences.