Climate change is the greatest market failure in history. Only true regulation can thwart disaster. Environmental social and governance criteria, a.k.a. ESG, “creates a giant societal placebo where we think that we’re making progress even though we’re not,” says my former BlackRock colleague Tariq Fancy. That is a bold claim about one of the hottest buzzwords in sustainable investing, but Tariq knows what he’s talking about: He was recruited by the world’s largest asset manager in late 2017 to be its first-ever chief investment officer for sustainable investing — Wall Street’s answer to society’s growing demands for action on climate change and other social issues. It was also at a moment of time when BlackRock was about to begin dramatically expanding its focus on environmental social and governance criteria, a.k.a. ESG, which CEO Larry Fink has described as the greatest investment opportunity ever. Fink has also championed that free markets, not systematic government action, are the route to resolving the climate crisis. Fancy is pushing back, arguing systematic government oversight is the only way to scalable climate solutions. BlackRock, Fancy says, is a “microcosm” of capitalism itself, and why its approach to climate action threatens climate progress. These are some excerpts from our talk.
You seem to be on an anti-ESG mission. Is that accurate?
I’m pro-environmental and social progress, of course. That’s why I joined BlackRock, having left the industry years earlier to found Rumie, an education technology nonprofit I now run. I was attracted by the promise of using my investing background to help “green” Wall Street and address the urgent climate crisis. But while some of the ESG movement, including various tools and standards, are steps in the right direction, they’re currently not being used correctly. And so we are at a moment in history when skepticism on ESG products is extraordinary. Journalists, fund managers, everyone is quietly talking about it. The major problem that I have is that even if they’re marketed correctly, they actually have no demonstrable impact.