Does ESG investing actually make a difference?

Is ESG investing worthwhile? Worse, is it a dangerous and pointless distraction?

That’s the crux of the debate making the rounds this week, after Tariq Fancy—the former chief investment officer for sustainable investing at BlackRock—more or less went nuclear, declaring the whole industry not just fuzzy and vague, but actively destructive.

If you’ve got some time on your hands, you could read Fancy’s 3-part “The Secret Diary of a ‘Sustainable Investor'” essay on Medium. In addition to its searing words about ESG, it’s threaded with basketball analogies and loads of tangential gossipy details, from BlackRock execs trying to learn to play bridge to impress Larry Fink, to former J&J CEO Alex Gorsky allegedly comparing himself to Thomas Jefferson during the drafting of the 2019 Business Roundtable agreement.

If you don’t have the time, the Financial Times had a zingy pre-screed interview with him, in which he laid out several of his essential arguments, and coined the likely-to-stick term “sustain-a-babble.”

Would he recommend his friends start investing in ESG? Absolutely not, he says.

“There’s no compelling reason to believe you’ll outperform non-ESG strategies. Nor will you have any real-world environmental or social impact,” he says. “All you’re doing is rewarding money managers through higher fees. Worse, in the aggregate, you are going to help contribute to a giant societal placebo and it is going to slow government action.”

In another line, he compares it to giving “wheatgrass to a cancer patient.” (In the essay, he claims it’s even worse: delaying chemo for the wheatgrass.)

Fancy’s framed the ESG critiques more vividly than many others, and he’s also doing so from his (former) vantage point in high finance. When BlackRock CEO Larry Fink, his former employer, declared the company would put climate change at the heart of its investing policy, it was seen as a game-changing moment for the industry.

But the serious questions he’s referring to are fairly well explored by academics and policymakers. One he hits on is the persistent, convenient claim that there are no trade offs between transitioning a business or country to a low-carbon economy, and making money. Another is the question of how much pressure should be put on personal choices (don’t fly, become a vegan, invest in ESG), versus what many of America’s largest companies have said themselves would be the most transformational shift: the introduction, by governments, of a very hefty carbon tax.

A third is the question of divestment, which he argues—at least from an equity standpoint—simply isn’t effective. As one expert I spoke to recently put it: do you want your portfolio to transition to net-zero, or do you actually want the world to transition? Divestment can get you to the first, but many ESG experts (if not all) argue that it cannot make meaningful difference on the second.

Fancy has plenty more to say on the subject. Have a read, and tell me what you think.

Katherine Dunn


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