FFrom his desk in midtown Manhattan, Tariq Fancy once oversaw the beginning of possibly the largest and most ambitious effort in history to turn Wall Street “green.” Now, as environmentally friendly investing grows at an exponential rate, Fancy has come to a stark conclusion: “This is definitely not going to work.”
As a former chief investment officer for sustainable investments at BlackRock, the world’s largest asset manager, Fancy was charged with incorporating corporate environmental, social and governance (ESG) policies into the investment giant’s portfolio.
Fancy was the leader of a movement that has given many people, including investors, activists and academics, hope that, after years of backing polluters, Wall Street is finally stepping up to tackle the climate crisis.
“I’ve looked inside the machine and I can tell you the business doesn’t have this,” Tariq told The Guardian. “Not because they are bad people, but because they operate machines for profit that will perform exactly as expected,” said Fancy.
Fancy, 42, worked for BlackRock between 2018 and 2019 and was the investor’s chief investment officer for sustainable investments at a time when BlackRock was preparing to announce a major change in strategy.
“The evidence on climate risk is forcing investors to re-evaluate basic assumptions about modern finance,” wrote BlackRock Chairman Larry Fink in his highly influential annual letter to CEOs in 2020, shortly after Fancy’s departure. “In the near future, and sooner than most anticipate, there will be a significant reallocation of capital.”
Going forward, Fink said, BlackRock would stop investing in companies that “present high risk related to sustainability.”
BlackRock manages around $ 7 trillion in assets and, with one of the most important voices on Wall Street raising the alarm about the need to deal with the climate crisis, the news was seen as a turning point for the financial community.
But for Fancy, who now runs the nonprofit digital learning organization Rumie In Toronto, Canada, the BlackRock movement and those it has inspired contain a fundamental flaw: the climate crisis can never be solved by today’s free markets.
“It is not because they are evil, it is because the system is built to extract profit,” he said.
Investors have a fiduciary duty to maximize returns for their clients and as long as there is money to be made in activities that contribute to global warming, no amount of rhetoric about the need for sustainable investments will change that, he believes.
“In many cases it is cheaper and easier to promote yourself as green rather than doing the work of actually improving your sustainability profile. That’s expensive and if there is no sanction from the government, in the form of a carbon tax or anything else, then this market failure will persist, ”said Fancy, a former investment banker who now leads an initiative to provide digital education. affordable. to underserved communities around the world.
The amount of money that was invested in sustainable investments through vehicles such as exchange-traded funds (ETFs). reach record levels last year. It’s a trend that Fancy believes could continue for years and still have zero impact on climate change because “there is no connection between the two.”
Moving money to green investments does not mean that polluters will no longer find sponsors. The argument is similar to divestment, another strategy that Fancy says doesn’t work. “If you sell your shares in a company that has a high emissions footprint, it doesn’t matter. The company still exists, the only difference is that you don’t own them. The company will continue to operate as before and there are 20 hedge funds that will buy those shares overnight. The market is the market.
“I don’t think the public will realize that we are not talking about stopping climate change,” he said. “We are literally talking about selling assets so we don’t get caught in the damage when it occurs.”
Businesses know this, Fancy said, and they know the solution too, they just don’t like it. He compared the reaction of business communities to the coronavirus pandemic to his views on climate change. “Science shows us that Covid-19 is a systemic problem for which we all need to tilt down the infection curve.”
As the crisis intensified, business leaders immediately supported government-led initiatives to restrict travel, close venues and shut down the economy. “The business round table [the US’s most powerful business lobby] He said we should make the wearing of masks mandatory. They were right about all those things, ”he said.
The world needed the government to use its extraordinary powers “because if we left it to the free market, everything would have been open in the United States and we would have lost millions of people, it would not have been half a million.”
Climate change is also a problem that, according to science, is systemic and in which we have to turn the curve. “The difference is the incubation period. It is not a few weeks, it is a few decades. For that they still say that we should trust the free market. That’s where I have a problem. “
A survey of 250 top executives supports Fancy’s point of view. Approximately 64% of the executives surveyed in a recent survey commissioned by British lender Standard Chartered said they “believe the economy to operate as a net zero [carbon emissions] the organization does not compare with your company ”. And 79% of top executives said short-term CEO tenure made it difficult for companies to transition to net zero.
With the current system, the costs, Fancy says, are simply too high, and the benefits of doing business as usual are too great. To 2019 Morgan Stanley Study found that reaching net zero by 2050 will cost $ 50 trillion.
“The reality is that their incentives are very short-term,” he said. “My concern is that when it comes to climate change, it is actually expensive. It’s like saying when it comes to Covid-19 that it is a crisis and an opportunity. Well, yes, it is an opportunity for Zoom, it is not an opportunity for society. “
There is a solution, Fancy said, and it is the one that business leaders adopted in the coronavirus crisis: government intervention. But, given the long timeline for climate change, it’s something business leaders don’t like.
What would work is a change in government policy that makes pollution more expensive, like a carbon tax, because that would change the corporate world and the incentives on Wall Street.
“If a carbon tax is applied, all portfolio managers would adjust their portfolio,” he said.
BlackRock questions Fancy’s analysis. In a statement, the company said: “Sustainable investment can generate strong investment returns while helping to address urgent social and environmental concerns.”
The company added that it believes greenwashing “is a risk to investors and detrimental to the credibility of the asset management industry, so we strongly support regulatory initiatives to set consistent standards and increase transparency for sustainable portfolios.” .
But for Fancy, the main point is that real change must be led by government, not Wall Street.
“If I were on a panel and someone asked me what is the best way to tackle climate change? Should I buy an ETF or should I call my congressman and demand legislation and a price for carbon? The truth is, someone better call your congressman. “
George is Digismak’s reported cum editor with 13 years of experience in Journalism