The history of mankind has mostly been one of starvation and scarcity.

For the vast majority of human existence, humans devoted the bulk of their time and energy to the acquisition of two things essential for life: food and fuel. As recently as two hundred years ago, 79 percent of the American labour force was engaged in agriculture. This is unsurprising; many have observed that civilization is “only nine meals away from anarchy”. Survival of the nation demands the dedication of whatever resources are needed to provide the necessities of life. 

This skewed division of labour changed with the invention of the internal combustion engine. Previously, the amount of energy available to till a field or reap a harvest was a function of the stamina of the farmer and whatever draught animals he might have. Since the amount of energy in a single barrel of oil is equivalent to 23,000 man-hours of labour,^{1What is a Human Being Worth (in Terms of Energy)? https://twitter.com/David_Mulroney/status/1565285864061779974?s=20&t=mdNUXFxVXMHqr5BiNLcmxg} the use of machinery freed up many people to apply their skills in other pursuits. Today, less than two percent of the Canadian workforce is engaged in agriculture. Due to the application of concentrated energy in the form of fossil fuels, mankind enjoys a lot of things today that would have been incomprehensible just two hundred years ago along with a greatly improved standard of living and confidence that the necessities of life will always be available when we want them.

In fact, it is so easy to become complacent in the face of all the abundance that we, perhaps inevitably, take it for granted. We observe that the things we need have always been there and conclude therefore they will always be there. We lose appreciation as to how they came to be available in the first place; electricity comes from the wall socket, steaks come from the butcher shop, gasoline comes from the service station, etc. Our appreciation for supply chains fades with time and distance, exacerbated by the increasing amount of time we spend in the digital, rather than the physical world.

This lack of awareness might be the kindest explanation for the onslaught of policies emanating out of Ottawa that seem designed to put Canadian society back on the road to deprivation and scarcity that we only escaped from a few generations ago.

Having mounted a spirited attack for the last several years against Canada’s most important export industry (oil and gas), our government has recently turned its attention to impairing the country’s ability to feed itself through the imposition of fertilizer regulations which farmers assert will dramatically reduce crop yields. Learning nothing at all from the self-immolation of the Sri Lankan economy under comparable diktats, Canada is preparing to rush headlong into a similar predicament. 

In a world facing impending food shortages and dealing with wicked price inflation, this makes little apparent sense. One wonders if Hanlon’s Razor applies here.^{2Hanlon’s razor advises that we “should not ascribe to malice what can easily be explained by incompetence.”} For substantiation, listen to this interview of the Minister of Agriculture with CBC Radio. The minister acknowledges that she is not farmer and not a scientist and really has no answer for all the experts that question this foolish policy, but fear not: she intends to hire a lot more bureaucrats!

Shortly thereafter, Justin Trudeau advised the President of Germany, which is about to endure possibly the coldest winter in decades due to a shortage of natural gas, that there has never been a “business case” for the export of LNG from Canada. This would be news to the many private companies that have been attempting to build such facilities with private capital over the past decade. It is estimated that our failure to build LNG terminals due to government interference has an opportunity cost to the Canadian economy equal to nine figures worth of GDP every day.^{3Canada Set To Miss Out On A Massive LNG Opportunity https://oilprice.com/Energy/Natural-Gas/Canada-Set-To-Miss-Out-On-A-Massive-LNG-Opportunity.html} At the same time, he maintains that there is a business case for the export of hydrogen, an element that actually consumes more energy to produce than it provides in its combustion. 

The dismissal of LNG in favour of hydrogen is preposterous. LNG is sold into an enormous and established global market. It is essential to the German economy for heat, power, and manufacturing. Canada has it in abundance and private companies are willing to invest the necessary capital. In contrast, hydrogen as fuel is not yet utilized at scale anywhere in the world and will require much research, time, and investment before it can be widely deployed. Not to mention gobs of government money. Yet the absurdity of Canada’s position seemed to be meekly accepted by the media and population at large. 

So…once again it comes down to food and fuel. Critical for maintaining civilization yet blithely taken for granted by political leaders and the population generally. Perhaps it is inevitable this insouciance will continue to prevail until the things we think will always be there, aren’t.

Economic decisions invariably involve trade-offs; there are always costs AND benefits. A singular fixation on carbon “pollution”, to the exclusion of all other considerations, prevents consideration of the other side of the equation. This includes factors such as economic growth, employment opportunities, and food security. This myopic perspective is leading to the inexorable dismantling of essential parts of the Canadian economy. Canada has already experienced capital flight totalling billions of dollars over the past seven years^{4Canadian Investors Shatter Records By Putting $115 Billion in Foreign Securities https://www.bloomberg.com/news/articles/2022-01-17/canada-foreign-investment-spree-hits-record-amid-capital-bleed} and is forecast to have the lowest GDP growth over the next twenty according to the OECD.^{5OECD predicts Canada will be the worst performing advanced economy over the next decade…and the three decades after that https://bcbc.com/insights-and-opinions/oecd-predicts-canada-will-be-the-worst-performing-advanced-economy-over-the-next-decade-and-the-three-decades-after-that} 

And yet, while we deteriorate, we are imposing anti-development policies that favour radical environmentalism and global virtue-signalling over logic and economic self-interest. All in the name of averting a climate catastrophe which we cannot avert because Canada contributes only 1.5 percent of emissions while major emitters remain largely unconstrained.  

Constraining Canada’s ability to produce food and fuel, thereby costing the country economically and ceding competitive advantage to other nations, in exchange for an immeasurably small environmental impact, is reckless and destructive. It’s well past time for Canadians to say “enough”. Canadian public policy should put the interests of Canada first.

The ESG movement^{1“Environmental, social, and governance (ESG) criteria are a set of standards for a company’s behavior used by socially conscious investors to screen potential investments. Environmental criteria consider how a company safeguards the environment, including corporate policies addressing climate change, for example.” https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp} is proliferating across the Western world. 

In the United States, the Securities and Exchange Commission wants to increase disclosure requirements (with an ESG focus) for investment funds. The European Union has had disclosure mandates for public companies since 2018, tied to the UN’s Sustainable Development Goals.^{2Do you know all 17 SDGs? https://sdgs.un.org/goals} Here in Canada, under current Canadian securities legislation, there are no specific requirements mandating the disclosure of the “environmental, social and governance” practices of public companies, but the idea is gaining steam in some Canadian precincts including the Trudeau government’s latest budget. 

Why? According to proponents, expansive and mandatory ESG disclosure regulations will better inform investors about the ESG practices of public companies (their carbon usage, for example) and thus more investment capital will flow to ESG-intensive companies and less will flow to companies lagging in ESG initiatives.

But in reality, an expansive government-mandated ESG reporting regime in Canada will likely have social costs that outweigh any social benefits. 

Consider this. If investors are willing to pay more to own stocks and bonds of a company that follows “best practice” ESG activities, that company surely has a strong incentive to inform the investment community about its ESG activities because it would help lower its financing costs, which, from an investor’s perspective, are mirror images of the values of that company’s equity and debt-financing instruments. As such, if companies voluntarily disclose to investors their favourable ESG-related activities, those companies should enjoy a lower cost of financing and a competitive advantage.

So if voluntary ESG disclosure will likely benefit companies, why would government need to impose an ESG disclosure mandate? True, in an environment where ESG disclosures are not mandated and thus less regulated by government, some companies may make false or exaggerated claims about their ESG practices (sometimes known as greenwashing^{3“Greenwashing is the process of conveying a false impression or providing misleading information about how a company’s products are more environmentally sound. Greenwashing is considered an unsubstantiated claim to deceive consumers into believing that a company’s products are environmentally friendly.” https://www.investopedia.com/terms/g/greenwashing.asp}). But these same companies would suffer permanent reputational and financial damage if investors identified this greenwashing. That’s likely a risk few companies would take.

Moreover, some argue that ESG disclosure rules, backed by regulatory penalties against violators, would produce more useful ESG information for investors than a regime of voluntary disclosure. But in reality, it’s unlikely that any standardized ESG disclosure rules would remain relevant across different companies carrying out a wide range of production activities in our modern economy. For example, why mandate the same carbon disclosure rules for petroleum refineries and software developers?

Also, rating companies based on ESG performance remains a subjective exercise. Indeed, different ESG rating services, which sell their corporate rankings to investors, often disagree in their rankings of the same companies. And individual rating services change their rankings of the same companies over short periods of time, sometimes dramatically. In this context, requiring investors to rely on standardized disclosure information consolidated and distributed by rating agencies might actually deprive investors of relevant ESG information that does not fit into the government-mandated disclosure format.

Finally, this debate should include empirical evidence about whether mandating more expansive and standardized ESG disclosures would benefit investors. But unfortunately, methodological and measurement problems plague the empirical tests on that question. Nevertheless, a new study published by the Fraser Institute, which evaluates the available empirical evidence on the financial returns to ESG-themed investment strategies, finds no consistent evidence supporting the claim that highly-ranked (by ESG rating agencies) companies are rewarded with lower costs of capital.

This finding further calls into question whether a more expansive and standardized ESG reporting regime—mandated by government in Ottawa or elsewhere—will produce social benefits. Although there’s no doubt it will impose onerous new costs of doing business, particularly on small and medium-sized enterprises.