In an opinion piece recently posted to USA Today, former BlackRock Sustainable Investing CIO Tariq Fancy argued ESG investment offerings are no more than a marketing ploy aimed at attracting new assets. His controversial comments called ESG a “distraction” and a false hope for addressing the real problem of climate change, even likening ESG investing to prescribing wheat grass as a cancer treatment. Mr. Fancy argues we must advocate for more government action to combat climate change rather than relying on the role of free markets and investors. Here's a quick rundown of our top 5 thoughts related to the article:
1. Contrary = clickbait. Mr. Fancy had a controversial message, maybe in part for the sake of views—and it worked. Searches of his name have skyrocketed since he published his opinion piece:
2. Mr. Fancy rightfully argues that some firms are taking advantage of ESG for the sake of “PR spin.” It’s true; greenwashing has become increasingly prevalent across the industry. But multi-billion-dollar investment management corporations don’t change marketing approaches on a whim. It’s more interesting to consider the reason why they’ve changed: Investors have massively disrupted Wall Street’s conventional wisdom that investors must forsake values for the sake of wealth creation. After fighting against this disruption for years, Wall Street has finally capitulated and embraced (and, yes, in some cases take advantage of) this change.
3. Mr. Fancy conflates greenwashing with real ESG integration. He points out the very real issues of greenwashing, in particular that Wall Street uses ESG to attract unwitting investors into funds that don't really follow ESG principles. But that doesn't mean that all ESG strategies are void of meaningful metrics that define ESG quality. The industry must certainly move toward more transparency related to funds’ and strategies' investment processes and holdings, along with more consistency in scoring methodology as well as overall investor education. But deriding the entire concept of sustainable investing is a “throwing the baby out with the bathwater” approach that disregards the industry’s transformative progress.
4. Mr. Fancy thinks ESG investing isn't going to make a meaningful difference to stop climate change, and that government regulation is necessary to do so. But, of course, those two things are not mutually exclusive. In other words, couldn't (and shouldn't) both happen in parallel? Shouldn't investors have options to invest along with values while, at the same time, governments enforce stricter rules to limit bad corporate behavior? Money talks. Investors moving billions away from poor ESG performers have already and will continue to influence how companies operate. And, ironically, the U.S. government (most recently by way of the SEC) is beginning to look at changing corporate requirements for things like climate reporting because investors have so loudly made these issues mainstream.
5. The article will empower the naysayers. But it's a conversation-starter, too. What's most disappointing about Mr. Fancy’s article is that is it certainly bolstered people's confirmation bias about ESG investing. Some investors, advisors, and asset managers more inclined to disregard or deride ESG likely read the headline to his op-ed and allowed it to validate misconceptions. Still, we appreciate the article as a catalyst for meaningful conversations that just might move the industry forward.