The 56th Annual Meeting of the World Economic Forum convening in Davos on January 19-23 will be the first without its founder, Klaus Schwab. WEF’s new organizers should use the occasion to distance themselves from Schwab’s worst ideas: stakeholder capitalism, ESG investing and the net-zero energy paradigm.
Stakeholder capitalism is a concept invented by Schwab. Schwab’s argued for years that capitalism governed by shareholders would be vastly improved by systematically elevating the inputs of other stakeholders, like employees, supply chains, community values and the environment. ESG investing is the analytic framework upon which stakeholder capitalism largely depends. ESG rating agents use non-financial metrics to identify the “best” and “worst” companies to overweight, underweight or exclude in investment portfolios. Stakeholder capitalists broadly embraced the net-zero energy paradigm, aka “Paris +1.5°C by 2050 at all costs”. Net-zero commitments led many European countries to spend trillions on wind and solar investments at the expense of more reliable, more resilient and considerably cheaper energy alternatives, including fossil fuels. WEF’s acolytes have cheered them on as they did.
All of these concepts have harmed humanity. It’s crucial to understand how – and to stop misrepresenting them.
Stakeholder capitalism wrongly places responsibility for market failures on corporations. But corporations don’t define market opportunities: consumers and regulators do. Stakeholder capitalists have told oil and gas companies to stop production even when demand for their products and services continued to grow unabated. Stakeholder capitalists instruct companies to do things those company owners do not want or support. That’s not capitalism: that’s communism.
Private companies perpetually debate how and where societal values and their financial valuations align. No company can succeed without keeping their customers loyal and happy. Bureaucratic regulations and quixotic ESG metrics provide no useful information about how companies can better serve their clients: in fact, they often give destructive advice. The infamous Bud Light commercial that was meant to expand its appeal among marginalized communities resulted in a 25% market share decline. Milton Friedman claimed in his defining treatise, The Social Responsibility of Business, corporations must broadly reflect the ethics and priorities of those they serve. To not do so is self-immolating. Friedman was and remains 100% correct. Embracing values not widely shared destroys financial valuations for no tangible social gain.
By prioritizing stakeholder needs, environmental, social and governance investment mandates pledged to generate superior market returns alongside tangible societal benefit. They failed to deliver either. As opposed to impact investing, which verifiably brings about change intended by the investor, ESG investing has neither done much good nor very well. ESG’s broad underperformance was presciently anticipated by Vanguard’s fabled founder, John Bogle. Bogle rightly observed that, to optimize long-run investment performance, investors should own the whole market at the cheapest possible price. ESG investment funds willfully violate both of these common sense principles.
Companies that consistently operate in their shareholders’ best long-term interests are legally, financially and morally superior to those which attempt to prioritize other, more amorphous priorities. Investors who want their capital to improve environmental and social outcomes should abandon ESG investing and embrace impact investing. Trillions of dollars of public capital invested in solar and wind farms have saddled European consumers with electricity bills that are four times higher than those born by their counterparts in the US and China. Over-reliance on renewables also created energy intermittency that led to the deaths of seven Spanish and one Portuguese citizen in April 2025. All-of-the-above national energy strategies which embrace fossil fuels, nuclear and renewables create greater reliability, resilience and affordability. No country should abandon fossil fuels unless and until they have found more reliable, more abundant and cheaper alternatives.
In the closing paragraphs of the General Theory, John Maynard Keynes observed “The ideas of economists and political theorists – both when they are right and when they are wrong - are more powerful than is commonly understood.”
For WEF to best serve the common good, they should repudiate the wrong ideas their founder Klaus Schwab helped popularize. WEF will never be a respected voice for human flourishing until the forum returns to time-honored, proven ideas: free market principles coupled with effective philanthropy, authentic impact investment and sound public policy.
Terrence R Keeley is the CEO of the Impact Evaluation Lab and Author of Sustainable: Moving Beyond ESG to Impact Investing.
