Anti-ESG politicians and pundits are at it again, this time claiming that the government of SRI Lanka collapsed, its president fled the country, and its citizens are rioting in the streets because the country has one of the highest ESG scores in the world.
Of course, this assertion is ludicrous—almost laughable. Anyone who has a basic understanding of economics knows that the root of domestic and economic turmoil is rarely this simple or straightforward. Correlation does not equal causation. But last week a Dutch politician and member of the European Parliament, someone who presumably has a grasp on these simple principles, placed the blame for power outages and food shortages in Sri Lanka on its near-perfect Environmental score of 98.1, according to worldeconomics.com. He tweeted this assertion on January 18 along with the warning that ESG could destroy the European economy and democracy, grandstanding in a language that was clearly aimed at reaching those who delight in conspiracy theories and embrace cataclysmic hyperbole.
In reality, at least three factors contributed to Sri Lanka’s current situation, according to more reliable sources: The near depletion of its currency reserves, its excessive foreign debt, and the abrupt ban of chemical fertilizers.
Naturally, the most outspoken critics of “woke capitalism” fail to mention these social and economic undercurrents, and they conveniently ignore the fact that governments around the world have been discouraging the use of nitrogen fertilizers in an attempt to reduce pollution and greenhouse gas emissions. Such restrictions were introduced last year in Canada and the Netherlands. Farmers protested, but no governments were toppled.
Why the focus on fertilizers and farms? Nitrogen exists naturally in the Earth’s atmosphere, serves as the foundation of proteins in human bodies, and helps make soils fertile for growing food crops. But the forms of nitrogen that enter the environment from synthetic fertilizers exacerbate climate change and deplete the ozone layer. They pollute land, water and the air we breathe. “When applied to soil, fertilizers containing nitrogen emit nitrous oxide, which has at least 265 times higher impact on climate change than CO2,” reports the credit rating agency Fitch Ratings.
Agriculture is the single largest source of nitrogen compounds entering the environment in the US, according to the US Department of Agriculture. The United Nations calls nitrogen one of the most important pollution issues facing humanity.
In true fashion, the backlash against these fertilizer restrictions is filled with dire predictions of the demise of the American farmer, nationwide food shortages, and sky-high prices. This is nothing more than hyperbole and fear mongering. But there is a high price to pay when anti-ESG rhetoric becomes public policy, as it did when Texas prohibited state agencies from doing business with a handful of financial firms the governor accused of boycotting fossil fuel companies.
Five of the largest municipal bond underwriters in the US exited the state, reducing competition and sticking Texas taxpayers with an additional $300 to $500 million in interest payments in just eight months, according to research from the University of Pennsylvania’s Wharton School of Business and Federal Reserve Bank of Chicago.
What price will we pay for reducing or eliminating nitrogen-based fertilizer? Certainly not the dystopian future these anti-ESG opportunists predict. Soil scientists in the US and abroad have been developing a number of promising alternatives for years, using advancements in genetics and DNA sequencing and exploring new cover crops that add nitrogen to the soil. And while some billionaires are wasting their money propping up anti-ESG politicians, others are investing in the farmers of the future. Bill Gates and Jeff Bezos were among the early backers of a startup called Pivot Bio, which pioneered a nitrogen-fixing bacteria that is applied to seed before it is planted. They made the investment through Breakthrough Energy Ventures (BEV), a fund that doesn’t require a financial return on its investment for 20 years.
Investors will also pay the price for owning fertilizer companies that aren’t proactive. A few of the largest producers on the NYSE are CF Industries (CF), Mosaic (MOS) and Nutrien (NTR).
Finally, politicians who oppose progressive environmental policies will lose votes. According to a survey conducted by the Walton Family Foundation last August, half of all voters are more likely to vote for a candidate who advocates for helping US farmers address climate change, while only 12% would be less likely to vote for such a candidate.
As Gen Z matures, those numbers are likely to increase.