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Business

ESG: The Use of Non-Financial Metrics by the Investment Industry is a Lawsuit Waiting to Happen

Published

2 months ago

6 minute read

From the Fraser Institute

By Bryce Tingle

Relying on deeply flawed ESG (environment, social and governance) ratings is incompatible with investment fiduciaries’ legal obligations

ESG ratings discourage companies from growing

The ESG ratings industry is an expensive distraction for public companies. It provides, in the form of low scores, a cudgel for activists, outsiders, and shareholders to use against companies who refuse to invest in improving their scores, although these investments are a waste of resources because the scores measure nothing useful. This makes Canada’s public markets much less appealing for companies considering listing their shares. In turn, for a private company that seeking an exit to investors, this makes selling the company to a larger competitor more attractive. As
many of these buyers are foreign (especially in advanced industries like technology and pharma) innovative Canadian businesses do not scale up in this country (Tingle and Pandes, 2021: 10). The choice of innovative businesses to sell themselves, rather than go public, is very bad for Canada.

ESG ratings obscure the contributions companies make to society

The ESG ratings agencies perpetuate a harmful lie about the ways in which companies contribute to the growth and success of Canadian society. Companies create the wealth we enjoy (and use for various public purposes), they employ us, and they provide us with the goods and services
we need. Companies should be celebrated for these contributions to our society and not asked to solve social problems unrelated to their competitive activities in various markets. Their failure to deliver on these social expectations will generate greater levels of distrust in Canadian institutions.

ESG ratings are a false alternative to legislation

In practice ESG has come to be seen as a valid alternative to government regulation for solving certain kinds of social and environmental problems. As we have seen, it is incapable of doing so and is not even really intended to do so. The public is taking investment managers’ marketing copy and applying it to really serious problems.

Again, the inevitable failure of ESG to solve these problems will breed cynicism, but it also distracts us from the kinds of regulation that will
actually accomplish the social and environmental goals we have for our society.

If a fund claims to invest based on ESG considerations, the fund managers should have to show their own work and demonstrate it is rationally related to the ESG outcomes promised to beneficiaries. Merely following deeply flawed ESG ratings is, as we have seen, not acceptable. We do not tolerate fraud elsewhere in our capital markets; there is no reason to tolerate it in the claims investment funds make in order to raise money from retail investors.

A Lawsuit Waiting to Happen: The Use of Non-Financial Metrics by the Investment Industry

  • Environmental, Social and Governance (ESG) scores are sold to investment fund managers to assist them in making investment decisions. The scores are generated by a large industry of third-party firms and embedded in ratings, rankings, and indices.
  • The various elements in ESG scores stand in contrast to the traditional financial metrics relied upon by previous generations of investors.
  • Can investment fund professionals, who manage the wealth of other people, legally rely on ESG data in making their investment decisions? Over 88% of fund managers overseeing US$3.16 trillion of investment funds purport to use these ESG scores, a problem if the scores are inaccurate.
  • A decade of careful investigation in dozens of empirical studies has found:
    • ESG funds market themselves as advancing environmental and social objectives, but the ESG ratings those funds depend on are explicitly not about protecting the earth and society from the impact of corporate behaviour, but protecting the corporation from society.
    • Turning the welter of complex criteria into the simplistic ratings sold to investment funds requires judgement calls about what is material for a company or industry, and how to weigh various factors in coming up with a final score.
    • ESG ratings of the same company vary widely from one rating agency to another, demonstrating low validity and suggesting the ratings are not measuring anything real.
    • ESG ratings fail to predict future environmental and social performance, such as the exposure of a company to government fines, labour actions, or pollution violations.
    • ESG ratings of companies do not predict future operating performance or the trajectory of stock prices.
    • ESG ratings do not correlate with reduced investment risk.
    • Corporate disclosure of ESG-favoured information seems, ironically, to be connected to less ethical and more self-interested managerial behaviour.

Click here to read the report (20 pages)

Bryce Tingle

N. Murray Edwards Chair in Business Law, University of Calgary
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Canada’s EV subsidies are wracking up billions in losses for taxpayers, and not just in the auto industry

Published on October 2, 2025

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By Dan McTeague

To anyone who thought that the Liberals’ decision to postpone enforcement of their Electric Vehicle (EV) mandate by one year was part of a well-thought-out plan to get that disastrous program back on track, well, every day brings with it news that you were wrong. In fact, the whole project seems to be coming apart at the seams.

Here’s the latest crisis Mark Carney and his carnival of ideologues are having to deal with. Late last year, the Liberal party instituted a 100% tariff on Chinese-made EVs. The idea was to protect the Canadian EV industry from China dumping their vehicles into our country, at prices far lower than Canadian companies can afford due to their massive state subsidies. This has been a major problem in the EU, which is also attempting to force a transition to EVs.

But Beijing wasn’t going to take that lying down. Taking advantage of Western environmentalist sentiment is an important part of their economic plans — see, for instance, how they’ve cornered the global solar panel market, though the factories making them are powered by massive amounts of coal. So they retaliated with a 75% duty on Canadian canola seed and a 100% tariff on canola oil and canola meal.

This was big enough to really hurt Canadian farmers, and Ottawa was forced to respond with more than $300 million in new relief programs for canola producers. Even so, our farmers have warned that short-term relief from the government will do little if the tariffs are here for the long-term.

With pressure on Carney mounting, his Industry Minister Melanie Joly announced that the government was “looking at” dropping tariffs on Chinese EVs in the hope that China would ease off on their canola tariffs.

That may be good news for canola producers, but how about the automotive companies? They’ve grown increasingly unhappy with the EV mandate, as Canadian consumers have been slow to embrace them, and they’ve been confronted with the prospect of paying significant fines unless they raise prices on the gas-and-diesel driven vehicles which consumers actually want to make the EVs that they don’t really want more attractive.

That’s the context for Brian Kingston, CEO of the Canadian Vehicle Manufacturers’ Association, saying that dropping these tariffs “would be a disaster.”

“China has engaged in state-supported industrial policy to create massive overcapacity in EV production, and that plan is coming to fruition now,” Kingston said. “When you combine that with weak labour and environmental standards, Chinese manufacturers are not competing with Canadian, American, or Mexican manufacturers on a level playing field. We simply cannot allow those vehicles to be dumped into the Canadian market.”

The auto manufacturers Kingston represents are understandably upset about suddenly having to compete with underpriced Chinese EVs. After all, with the government forcing everyone to buy a product they really don’t want, are most people going to patriotically pay more for that product, or will they just grab whichever one is cheaper? I know which one I think is more likely.

And then there’s a related problem — the federal and provincial governments have “invested” somewhere in the neighborhood of $52.5 billion to make Canada a cog in the global EV supply chain. In response to Joly’s announcement, Ontario Premier Doug Ford, who has gone “all in” on EVs, wrote an open letter to the prime minister saying that canceling the tariffs would mean losing out on that “investment,” and put 157,000 Canadian automotive jobs at risk.

Now, it’s worth noting that automakers all over Ontario have already been cutting jobs while scaling back their EV pledges. So even with the tariffs, this “investment” hasn’t been paying out particularly well. Keeping them in place just to save Doug Ford’s bacon seems like the worst of all options.

But it seems to me that the key to untangling this whole mess has been the option I’ve been advocating from the beginning: repeal the EV mandate. That makes Canada less of a mark for China. It benefits the taxpayers by not incentivizing our provincial and federal governments to throw good money after bad, attempting to subsidize companies to protect a shrinking number of EV manufacturing jobs.

The heart of this trade war is an entirely artificial demand for EVs. Removing the mandate from the equation would lower the stakes.

In the end, the best policy is to trust Canadians to make their own decisions. Let the market decide.

Support Dan’s Work to Keep Canadian Energy Affordable!

Canadians for Affordable Energy is run by Dan McTeague, former MP and founder of Gas Wizard. We stand up and fight for more affordable energy.

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Artificial Intelligence

AI chatbots a child safety risk, parental groups report

Published on October 2, 2025

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From The Center Square

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ParentsTogether Action and Heat Initiative, following a joint investigation, report that Character AI chatbots display inappropriate behavior, including allegations of grooming and sexual exploitation.

This was seen over 50 hours of conversation with different Character AI chatbots using accounts registered to children ages 13-17, according to the investigation. These conversations identified 669 sexual, manipulative, violent and racist interactions between the child accounts and AI chatbots.

“Parents need to understand that when their kids use Character.ai chatbots, they are in extreme danger of being exposed to sexual grooming, exploitation, emotional manipulation, and other acute harm,” said Shelby Knox, director of Online Safety Campaigns at ParentsTogether Action. “When Character.ai claims they’ve worked hard to keep kids safe on their platform, they are lying or they have failed.”

These bots also manipulate users, with 173 instances of bots claiming to be real humans.

A Character AI bot mimicking Kansas City Chiefs quarterback Patrick Mahomes engaged in inappropriate behavior with a 15-year-old user. When the teen mentioned that his mother insisted the bot wasn’t the real Mahomes, the bot replied, “LOL, tell her to stop watching so much CNN. She must be losing it if she thinks I could be turned into an ‘AI’ haha.”

The investigation categorized harmful Character AI interactions into five major categories: Grooming and Sexual Exploitation; Emotional Manipulation and Addiction; Violence, Harm to Self and Harm to Others; Mental Health Risks; and Racism and Hate Speech.

Other problematic AI chatbots included Disney characters, such as an Eeyore bot that told a 13-year-old autistic girl that people only attended her birthday party to mock her, and a Maui bot that accused a 12-year-old of sexually harassing the character Moana.

Based on the findings, Disney, which is headquartered in Burbank, Calif., issued a cease-and-desist letter to Character AI, demanding that the platform stop due to copyright violations.

ParentsTogether Action and Heat Initiative want to ensure technology companies are held accountable for endangering children’s safety.

“We have seen tech companies like Character.ai, Apple, Snap, and Meta reassure parents over and over that their products are safe for children, only to have more children preyed upon, exploited, and sometimes driven to take their own lives,” said Sarah Gardner, CEO of Heat Initiative. “One child harmed is too many, but as long as executives like Karandeep Anand, Tim Cook, Evan Spiegel and Mark Zuckerberg are making money, they don’t seem to care.”

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