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Free Markets And ESG Investing Won’t Fix The Climate Crisis, Says Former Blackrock Sustainability Chief

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Tariq Fancy spent nearly two years as the first global chief investment officer for sustainable investing at $8 trillion investment management giant BlackRock.

Fancy left the New York-based financial services conglomerate in September 2019, going on to found technology non-profit the Rumie Initiative. Earlier this month, he caused an uproar with an op-ed in USA Today in which he spoke of his experience and said thaat, “The financial services industry is duping the American public with its pro-environment, sustainable investing practices.”

Forbes sat down with Fancy to ask about that piece and have him expand on his views of ESG investing, climate change, financial regulation and the solutions he sees to the problems he wrote about.

Tariq Fancy was named BlackRock’s first global Chief Investment Officer for Sustainable Investing in 2018.

Why did you decide to speak out now with the op-ed you recently wrote for USA Today?

It is good we are talking about the piece I wrote because it doesn’t get across the full argument because it can’t in that many words. The reason I spoke out was that I was sitting inside the machine, responsible for integrating ESG considerations into all of our investment properties, and started to realize that there really wasn’t that much value in ESG data. I wish I could tell you that if you have a higher ESG score then your shareholder returns are better because ESG linking to returns is the proxy for saying more responsible companies profit more. It sounds good but it’s not actually the answer. We’re in this bind because it’s not that profitable to be responsible.

When I left, I started to realize that despite the marketing there’s no impact. I believe in markets, I’m a former investment banker, an MBA, and a pro-business capitalist. But I also know that there are limitations in markets and when you have market failures you need to fix them.

Think of an Islamic investor who doesn’t want to own alcohol or pork and screens it out. None of them think it’s going to stop people from drinking around the world, it’s just that they don’t want to be involved in it.

People confuse boycott and divestment. If you boycott something and it loses 10% of its revenue, that matters. If shareholders boycott a stock and 10% of the market doesn’t buy it, it has no impact because a whole bunch of hedge funds buy it. No company needs 100% of the market to buy the stock, nor will that ever happen.

I came to the conclusion that society is a cancer patient and climate change is growing like a cancer. We’re selling wheatgrass to the cancer patient. It’s well marketed, but there is no evidence it is going to help stop the spread.

After I left that I saw the marketing reach level that implied that by doing this you can fight climate change and impact social causes, it was a rush to gather assets.

I started to wonder whether it was actually harmful because it had a placebo effect. If you go back to the wheatgrass analogy, it’s kind of like the wheatgrass is being marketed in a way that it is actually delaying the patient from starting chemo. At that point, you can’t make the argument that it’s harmless, it is delaying the reforms we need.

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