Now get this. A former C-level exec at Black Rock. Yes that Black Rock, resigned from his position as chief of sustainable investing, and basically throws up his hands and says governments have to throw their chips into the centre and quit playing coy, and step up to the plate. I’ve summarized the article from the Globe and Mail below.
Tariq Fancy was formerly BlackRock Inc.’s chief investment officer for sustainable investing.
Tariq makes the case for the government to step into the fray and legislate more effective actions to curb carbon emissions in Canada much like they stepped up to flatten the curve when the COVID-19 first struck. His article is behind the Globe and Mail paywall here
His argument is simple, straight-forward. Tariq was the Chief Investment Officer (CIO) of BlackRock. BlackRock manages nearly US$9-trillion in assets and owns interests greater than 5 per cent in a substantial majority of companies in the Standard & Poor’s 500 Index. Tariq enjoyed the support of BlackRock’s CEO, Larry Fink who was a huge backer of socially conscious investing or what has become better know as investing through an environment, social and governance (ESG) lens. But Tariq, after a while on his job came to this conclusion:
But I quickly learned that ESG isn’t as useful to investing as I had hoped. Acting responsibly is not as profitable as advertised. Moreover, going through the investment process is a bizarre place to try to create social impact in the first place. Investment professionals are like competitive athletes: They’re trained to chase yield and profitsTariq Fancy
And furthermore, are investment managers really to blame? A focus on ESG could jeopardize their standing and integrity, as Tariq states, “investment managers are legally obligated – as well as financially incentivized – to focus on dollar values, not social ones.”
Based on his experience as the CIO at BlackRock, Tariq emerges as a sharp critic of what he calls a “ludicrous response” to the climate crisis which he calls “one of the greatest market failures in history.” It’s time he says to drop our back slapping humanitarian commitments to ESG investing, not only is this like fiddling while Rome burns, its totally ineffective. Frankly it doesn’t work in Tariq’s eyes.
Unfortunately, Western capitalism has become distorted in recent years. Incentives are skewed to the short term – far too short to care about the long-term public interest – and there is lax or no regulation in areas of critical importance.
Tariq, anticipates his critics who claim his call for a stronger government actor to step up to combat the current climate crisis is heavy handed and will distort market signals, and who still find recourse to letting the market mechanism decide free of outside intervention. His reply is simple and honest and evident to anybody who has noted the heavy intervention of rules and legislation required in order to allow markets to operate ‘optimally.’ Tariq argues, “A market economy is, at its core, a collection of rules. No rules mean no market.”
Nor is there one set of standard rules. Every rule, including corporate tax rates, patent protection and fines against pollution, is a deliberate decision that has an impact on the system. If a government changes the rules, we get different results – all of which can be defined as market outcomes. Changing rules is no more an “intervention on the free market” than creating them in the first place.
Sustainable investing with an ESG lens which is now standard corporate response, is what Tariq calls a “social placebo.” Something that corporate capital is pointing to as an example of the market solution to the environmental crisis. But Tariq argues ESG has not lead to any appreciable benefits and no measurable outcomes that can be pointed to as significant success in combatting climate change. Sustainable investing, acting as a “social placebo” is what is delaying governments from acting. It’s what Tariq calls a “deadly distraction” and too little, too late. Leaving climate solutions purely up to socially conscious investments is a non-starter. Governments, like they have when COVID-19 first hit, must take strong and determined action on climate change argues Tariq.
Business and markets serve society, not the other way around. So, why do some Canadian business leaders still think it’s reasonable for governments to take action to bend down the COVID-19 infections curve, but not to bend down the greenhouse gas emissions curve?
Tariq’s call to action is based on the premise that systemic, structural change is what is needed now in order to reverse the effects of the climate crisis, and for that to happen governments must step in and show leadership. Canadians are ready, polls show they are supportive of governments leading the way on this important issue.