Frankfurt Tariq Fancy was part of the system. As Blackrock’s top manager, he regularly flew from customer meeting to customer meeting in a company jet in order to sell so-called sustainable investments. Then he left the world’s largest asset manager – and is now back as one of the most prominent critics of the booming industry.
Investments that meet ecological, social, or ethical standards (environment, social, governance, ESG for short) exceeded the two trillion dollar mark worldwide in the second quarter of this year. This means that ESG investments have almost tripled in three years, according to data from the analysis company Morningstar.
As the largest asset manager in the world, Blackrock wants to benefit from this boom in the same way as the big banks in Europe and the USA. But for Fancy, ESG is a “dangerous placebo”. Sustainable investments would give investors the feeling of investing in something “good” and at the same time being able to earn attractive returns, he says in an interview with the Handelsblatt. “But that only obscures the uncomfortable truth that we need to achieve a lot more. And that also includes making unpleasant decisions. ”
In Fancy’s opinion, politicians should press ahead with the fight against climate change with clear guidelines. Only then could the financial markets take over their steering function. Fancy calls for a CO2 tax coordinated by the G7 or G20 countries.
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Above all, it is important that the USA go along with it. “I don’t want to take Europe out of responsibility. But the EU will reach its limits in what it can achieve if the US remains outside. ”
Fancy, head of sustainable investing at Blackrock until 2019, is fueling the discussion about the ESG complex with his change of heart. The direct trigger of the debate were the allegations of the former head of sustainability at the German fund company DWS against her ex-employer. Desiree Fixler accuses the subsidiary of Deutsche Bank of having systematically embellished its commitment to sustainability. The US Securities and Exchange Commission and the German financial regulator Bafin are now investigating the case.
The SEC has been working on new regulations for the ESG area for some time. Government chief Gary Gensler could oblige fund managers to disclose which criteria they apply to ESG funds and which data they use to classify sustainable investments. In Europe, the EU is working on a so-called taxonomy: a system of rules that defines which standards should apply to sustainable investments in the future.
In his opinion on the primacy of politics in the fight against climate change, Fancy is not that far removed from his former employer. Blackrock stresses that governments must take the initiative to meet the climate targets set in the Paris Agreement.
In his most recent letter to shareholders, company boss Larry Fink clearly emphasizes the importance of politics: “Governments must take a leading role in combating this crisis: setting standards, setting the right incentives, setting a price for CO2 and in technology and infrastructure invest, ”writes Fink
Setback for Deutsche Bank
Regardless of this, Blackrock is convinced that sustainable investments are worthwhile for investors and can deliver “robust returns”. This is also what Deutsche Bank boss Christian Sewing believes in, who sees sustainability as one of the “greatest growth opportunities in decades”. Sewing believes that when it comes to sustainability, winners and losers in the financial industry will be divided.
In view of these statements, the discussion about possible misconduct by DWS comes at an inopportune time. The debate does not only affect Deutsche Bank’s fund subsidiary. The allegations have startled a number of European fund managers who are now reviewing their marketing in order not to get into trouble with the supervisors.
Regarding the DWS case, Fancy says: If Fixler’s allegations were true, then “DWS would have communicated something different externally than internally”. The DWS strictly rejects Fixler’s allegations.
Fancy assumes that more cases of so-called “greenwashing” will hit the headlines in the coming months. “A number of dominoes will fall over,” he predicts.
Further greenwashing allegations are expected
This is also due to the fact that the definitions of which investments exactly deserve the ESG seal are still so vague. “There are no clear rules. It’s like playing soccer on a field with no lines drawn. At most you can guess where the limits are. “
Chuka Umunna, Head of Sustainability Europe at the American bank JP Morgan, sees it similarly. He also expects that the DWS will not be the last case of “greenwashing allegations”.
Would ex-Blackrock manager Fancy advise investors to invest in ESG funds right now? “No,” was his clear answer. “You pay higher fees and there is no guarantee that you will get better returns for it. Instead, you contribute to the spread of a social placebo. “
In Fancy’s opinion, the capital markets can play an important role in the fight against climate change. There are definitely important investments, for example in funds that, like venture capitalists, invest in projects that make a measurable positive contribution to decarbonization. “These funds invest in breakthrough technologies. They may make up one percent of the market today, but we could use more of that, ”says Fancy, who now runs a charity that provides better education for disadvantaged children.
More: The long road to greener finances