The former head of sustainable investing for the world’s largest fund manager has labeled the approach as futile, calling government action the only remedy to climate change.
In an article penned for USA Today, Tariq Fancy, the former BlackRock chief investment officer for sustainable investing, said the financial services industry is “duping the American public with its pro-environment, sustainable investing practices”.
“This multitrillion dollar arena of socially conscious investing is being presented as something it’s not,” Fancy says. “In essence, Wall Street is greenwashing the economic system and, in the process, creating a deadly distraction. I should know; I was at the heart of it.”
He held the BlackRock role for about two years ending September 2019 before departing to manager family business concerns following the death of his father-in-law.
Fancy left BlackRock “believing that if [environmental, social and governance (ESG) investors] weren’t doing as much as we could, at least we weren’t doing any harm”.
“Since my departure, I have had a lot of time to think about this issue, and I’ve reassessed my opinion,” the article says. “I believe we are doing irreversible harm by stalling and greenwashing. And all in the name of profits.”
He says the ESG message has been warped by industry practices such as “cynically rebranded” green funds, sustainable funds holding “irresponsible companies” to boost performance and even short-selling strategies betting against firms with strong environmental credentials.
“Risk managers are focused on protecting their investment portfolios from potential damages done by a worsening climate rather than helping prevent that damage from occurring in the first place,” Fancy says.
Flows into ESG products including exchange-traded funds (ETFs) almost doubled last year, he says, with the investment industry the main beneficiary rather than any real-world changes.
According to a Wall Street Journal report published last week, sustainable ETFs typically cost 43 per cent more than vanilla varieties: albeit ESG ETFs in the US charge a still-low 0.2 per cent on average in annual fees compared to 0.14 per cent for the unscreened market-cap versions.
Fancy notes the US financial regulator, the Securities and Exchange Commission (SEC), is forming a Climate and ESG Taskforce to combat greenwashing and like. In NZ, the Financial Markets Authority (FMA) also recently imposed guidelines for ‘integrated financial products’.
BlackRock told the UK Independent publication in a statement that: “… greenwashing is a risk to investors and detrimental to the asset management industry’s credibility, which is why we strongly support regulatory initiatives to set consistent standards and increase transparency for sustainable portfolios”.
But while welcoming the regulatory attention, Fancy concludes the ESG investment promise is “little more than marketing hype, PR spin and disingenuous promises from the investment community”.
He says the COVID-19 crisis showed government action rather “free market” solutions were needed to address climate change.
“We’re running out of time and need to accept the truth: To fix our system and curb a growing disaster, we need government to fix the rules,” Fancy says.