ESG-forward investing seems to be taking over the financial industry, but ex-BlackRock chief investment officer for sustainable investing Tariq Fancy warns that this is simply another form of greenwashing. In an opinion article, Fancy says that the Wall Street is “greenwashing the public with deadly distraction in sustainable investing practices” instead of getting to the heart of the issue: the rigged system fuelling climate change needs an overhaul.
Many would agree that the financial industry has come under a lot of pressure in recent months, especially in the wake of the pandemic, with the realisation of the consequences of continued ecological damage driving the sustainable investing push. ESG investing has become more popular than ever before with investors, with promising data of its outperformance over traditional funds in 2020.
There’s now been a slew of campaigns and initiatives all focused on “going green”, from a new platform dedicated to ESG-focused financial products launched by the Hong Kong Exchanges and Clearing Limited (HKEX), to multinational investment banking giant Goldman Sachs pledging to reach net-zero by 2030 in response to what its CEO David Solomon said was “no slowdown” in sustainable finance demand from its clients.
But Tariq Fancy, former CIO of sustainable investing at BlackRock, the world’s largest asset manager who has since joined the Climate Action 100+ pact and made bold statements to “punish” high-emissions companies in its portfolio, says all of this amounts to nothing more than “merely PR”.
In truth, sustainable investing boils down to little more than marketing hype, PR spin and disingenuous promises from the investment community.
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.
“The financial services industry is duping the American public with its pro-environment, sustainable investing practices,” wrote Fancy.
“This multi-trillion dollar arena of socially conscious investing is being presented as something it’s not. 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.”
While at BlackRock, Fancy led the firm’s push to incorporate ESG into its investments and championed the whole concept that what’s good for the planet was profitable. He says this is impossible – the system itself doesn’t allow for a real “cure” to the problem.
“Sadly, that’s all it is, a hopeful idea. In truth, sustainable investing boils down to little more than marketing hype, PR spin and disingenuous promises from the investment community,” he says, citing ESG products that contain fossil fuel majors and fast fashion polluters – in order to lift the fund’s performance – as clear instances of blatant greenwashing.
“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.”
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.
Another problem is that these firms are getting away with it – because “claiming to be environmentally responsible is profitable”. But really doing something in favour of the climate, doesn’t necessarily bring the same monetary results.
“To advance real change in the environment simply doesn’t yield the same return.”
Fancy says that the real cure will have to be “won through the combined efforts of science and policy”, and he makes the analogy with fighting the coronavirus pandemic. What will make a real difference, in both cases, is top-down government action, he argues.
“I believe we are doing irreversible harm by stalling and greenwashing. And all in the name of profits. 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.”
Lead image courtesy of Unsplash.