Throughout the 19th and 20th centuries, capitalism allowed Western societies to achieve previously unimaginable standards of prosperity, expectation and quality of life. Two opposing camps of thought competed for prominence and balanced each other.

On the one hand, the ideas of the free market and free competition. On the other, the promotion of State interventions as a means of balancing markets and ensuring the advancement of economic progress. At the turn of the 21st century, with the advent of environmental, social and corporate governance, the concept of the free market began to disappear and, perhaps not accidentally, the middle class has suffered the consequences.

In microeconomics, in which the phenomena of economic exchanges in industries are studied, the free market is close to the concept of “perfectly competitive market”. To achieve this, some structural conditions must exist: products with little differentiation, numerous economic agents and low barriers against the entry or exit of competitors. In this case, no individual has market power and the price to be charged is given by the point at which the quantity of product supplied equals the volume demanded.

Competition is free and economic agents, when competing for markets, pursue solutions that are increasingly attractive to their customers. They thus become the main vectors of innovation, productivity gains in the economy and, ultimately, material progress. The middle class, itself a product of capitalism, prospers, creating increasingly larger consumer markets in a virtuous model of sharing the benefits of economic progress.

At the opposite extreme, the theory describes monopoly, in which the barriers against the entry of new competitors are insurmountable, with no competition. The price and quantity of production are defined exclusively by the monopolist in such a way that its profitability is maximized. The volume offered will be lower, the price will be higher, and if there is no risk of substitutes, consumers will not benefit from new versions of the products. The concentration of income is evident.

As nature is relentless, entrepreneurs always seek to capture market power and guarantee extraordinary gains for their business. To do so, it either takes advantage of natural barriers against competition, or seeks to build them. This is how oligopolies are formed, in which large companies coexist with small operators in an environment of unequal competition.

There are, therefore, two types of barriers against competition: natural and artificial. The natural ones are those related to the intrinsic characteristics of the industry and the competence of the economic agent to take advantage of them.

A good example is Brazilian agribusiness. On the one hand, we have the grain production, beef cattle and dairy industries. As there are no economies of scale in land ownership, rural producers do not have market power; no matter how big they are, they are price takers.

It is no surprise that, in large producing regions, the middle class prospers. In agribusiness, installed industrial capacity produces dynamics that determine economies of scale, which favors concentration. Other examples of natural barriers are brand prominence, the requirement for high initial investments and access to low capital costs and disruptive innovations.

The artificial barrier is market regulation. This is where the centuries-old debate between those who advocate policies of deregulation and competition and those who advocate greater regulatory intervention and inexorable market concentration takes place.

Until the end of the last century, regulation in the most diverse jurisdictions in the world was the exclusive competence of national states, through their respective systems of political representation.

At the turn of the century, with the justification of preventing an existential threat, powerful financial oligopolies teamed up with the United Nations in Europe to present a solution for humanity: environmental, social and corporate governance.

Despite the supposed benevolence of the initiative, the fact is that it constitutes a powerful instrument for global regulation and the promotion of oligopolies on a scale never before imagined.

Let us take a brief look back at the institution of the mechanism. In 1997, the idea emerged in London financial circles that non-financial and subjective considerations should be included in determining the value of companies.

It was the Triple Result, made up of economic results (profit), environmental sustainability (planet) and social responsibility (people). Between 2004 and 2005, two studies commissioned by the United Nations and supported by some of the world's largest financial conglomerates, including Banco do Brasil, launched environmental, social and corporate governance. The first, financed by the Swiss Ministry of Foreign Affairs, brought a set of “recommendations from the financial industry to better integrate environmental, social and governance issues into asset analysis and management and securities brokerage”.

The second introduced a legal approach, stating that it would be the fiduciary duty of financial companies to integrate environmental, social and corporate governance into their investment analysis processes.

The coup de grace to free market logic was the replacement of the economic profit pillar of the Triple Bottom Line with the G for Governance of environmental, social and corporate governance.

From then on, not even the operators of those naturally competitive industries, such as rural production, would have exclusive power over their own businesses, having to share them with half a dozen powerful financial conglomerates. The risks, however, would continue to be yours alone.

Twenty years after its beginning, let's see where we stand. The totality of the so-called “financial assets of environmental, social and corporate governance ” reached the figure of 35 trillion dollars at the end of 2020, twenty-four times the Brazilian Gross Domestic Product.

The “environmental, social and corporate governance funds” industry, a portion of the market that is fully parameterized by environmental, social and corporate governance rating agencies, totaled $793 billion at the beginning of 2022. The leading agency in this ratings market, Morgan Stanley Capital Internacional, holds a 56% market share. What is the level of power of a company that ultimately regulates access to such a considerable portion of the global capital market, at its sole discretion and under no supervision?

And how is the reputation of environmental, social and corporate governance in the first transmission link of the system, that is, in large companies? According to a global survey conducted with 1,476 senior executives, four out of five respondents believe that their companies, because they are not able to measure their efforts, promise what they cannot deliver and 72% believe that the majority of organizations in their industry would be caught in fraud (greenwashing) if thoroughly investigated.

It is difficult to question a system that has become hegemonic, considered the only alternative corporate behavior capable of saving the planet from man himself. I suspect, however, that the distortions and real purposes of environmental, social and corporate governance are revealed at the slightest scrutiny. Who knows, in that case, the legacy of free market ideas could return to the place it deserves in Western culture.