A former insider pricks the conscience of the asset management industry.
One of the more interesting interventions in the ESG investing debate this week was made by a former insider. Ex-BlackRock CIO of Sustainable Investing Tariq Fancy (great twitter handle: @sosofancy), who left his job for unrelated personal reasons, authored an op-ed, which denounced “cynical” rebranding exercises, greenwashing the public with the “deadly distraction” of sustainable investing.
Fancy backed the US Securities and Exchange Commission’s (SEC) planned crackdown on ESG-related misconduct but insisted government take a stronger lead, citing the pandemic’s example of the value of top-down action. “Both threats can only be won through the combined efforts of science and policy,” he said.
Fancy’s assertion that a free market will not fix itself found wilder echoes. But his central points will strike home to institutional investors trying to keep the real-world impact of their portfolios within boundaries.
It’s hard to know whether you’re really making a difference at the best of times, let alone when scientists are making jet fuel from landfill, monitoring the thawing of the world’s largest carbon store, and pondering whether the Amazon is now more problem than solution.
When the claims of the asset management industry are under scrutiny, wider doubts can be sown. Interviewed by ESG Investor, Professor Nick Robins highlighted the importance of bringing all stakeholders on the journey to a low-carbon economy. Robins was talking primarily about workers and consumers, but work remains at the c-suite level, according to PwC.
As in any week, there was mixed evidence on the meaningful adoption of sustainable investment practices, from Swiss Re’s ambitious targets to UK pension schemes’ TCFD struggles to BlackRock’s ongoing transition.
There were signs of governments and regulators heeding Fancy’s call for leadership, with the US SEC embracing a “new landscape of institutional investor-driven corporate governance” and the Commodity Futures Trading Commission establishing a Climate Risk Unit. As predicted by Robins, policy is accelerating rapidly at the European Central Bank too.
In Asia, India moved closer to a net-zero commitment, following China’s publication of more details about its carbon neutrality plans. The UK government unveiled an “ambitious blueprint” for the world’s first low-carbon industrial sector, while continuing to give mixed messages to an automotive sector already struggling to keep pace with change.
If politicians take Fancy’s advice and follow the science, industry and investors alike must brace themselves for higher carbon taxes, and sooner rather than later. This will need to be factored into an already complex investment picture. Active and passive vehicles have attracted strong inflows through efforts to align portfolios with ESG risks and opportunities. But demand for green assets is leading to some surprising, not to say unsustainable, valuations in both the equity and bond markets, where further challenges are on the horizon.
Integrating ESG into one’s portfolio (and lifestyle) is a race against time, with wins needed along the way to maintain momentum. Having seen recent figures on the GHG footprint of certain foods, investment opportunities in emissions-free cheese would be particularly welcome.