BlackRock former CIO Tariq Fancy on greenwashing, "following passion alone," and other scams

The Business of Business: You worked for BlackRock between 2018 and 2019 as the Chief Investment Officer for sustainable investing, at a time when BlackRock was preparing to announce a major shift in strategy. Could you tell us a bit about your experience there?

Tariq Fancy: Yeah, definitely. And to clarify the exact dates, I got recruited and approached to join them in late 2017, joined in January 2018, and then in March 2019 I told them I had to leave to read because of family business. So I left finally in September 2019. My responsibilities there, as Chief Investment Officer, mainly were around integrating environmental, social, and governance considerations into all of our investment processes globally. So that's the overall, the $8.7 trillion of the existing machine, of which the majority is passive. (BlackRock is so big, it’s a microcosm of capitalism in a lot of ways.) We also worked on new products, which would be like, if you think of the $8.7 trillion of BlackRock’s overall, there's a new growing category of ESG or green products. I think at the time I was there, we started measuring it at like $50 billion or something. I thought I saw them publicly say it’s at $200 [billion] now. It's obviously growing much faster than everything else. It was really about greening the entire machine and all their processes with the guise of saying like, this is good for investing returns. And then saying we're also going to build a bunch of new products that actively lean into the ESG or green angle, with the idea that you can get a good return and create measurable impact for environmental social goals.

You've been very critical about sustainable investment practices and ESGs. Earlier this month for USA Today, you wrote, “Sustainable investing boils down to little more than marketing, hype, PR, spin and disingenuous promises from the investment community.” Could you expand on that point?

In general, people believe that all of this work that Wall Street is doing is creating social impact. They believe that it's both intended to, and should, be creating some positive change for the real world around us. The reality is that for the majority of products, there's no demonstrable impact on anything. When people talk about impact measurement, they talk about a principle called additionality. Additionality is really just the idea that by doing this, something additional is being created that otherwise would not have been created. So if you invest in ESGs, something better will happen in the world because you’ve now done that. In reality, behind the scenes, the mechanics of how the secondary public markets work...I won't get too jargony, but you don't do anything. You're just basically moving shares around and saying you have certain values because you care about making the world better place in addition to investing your capital. And so they're allowing you to put your money less behind fossil fuel players, and a bit more behind green companies, but the way share trading around markets works, it almost doesn't matter. As long as the companies that are not doing good things, like fossil fuel, and they can still reap profits, they're always going to find more financing.

It doesn't matter, the fact that you and I decide not to invest in them, whether we divested it, which is the early days of sustainable investing, or what we do now which I call soft investments. They don't actually remove the fossil fuels entirely, but they say it’s 10% or 20% lower than the measurable index that otherwise the market is actually using. So you get a lower carbon footprint and you own less fossil fuel makers. You feel nice about that because you don’t want to contribute to climate change, but it doesn’t do anything. If you and I stop owning it, it still sits there and does whatever they're doing, and they still make profit and they'll still find 20 hedge funds that’ll buy their stock. Most of the products that are now being sold are just variations on that theme. They tilt in a certain direction, but there's not one ounce of evidence that this creates any kind of measurable social impact for pressing goals that we need to address as a society. 

The reason that I decided to speak out about it was after I left, I noticed the marketing had reached such crazy levels because no one's regulating what's green and what’s not, whether it's the financial products that we buy or stuff on the shelves. It’s this gold rush because everybody knows that we can put green labels on stuff and it'll sell. The incentive — without any regulation or any referee or independent observers — is just to do the least amount you can to change your existing process, whether it's investment properties or real economy companies building stuff. Do the least you can while getting the green label and then stuff flies off the shelves because consumers don't know any better. We don't know if it's really green or not and no one's regulating what they're saying. My concern is that it's bigger than the financial system. It creates a massive societal placebo because everybody thinks that they're doing something good and that Wall Street's got this. And nothing that Wall Street is doing is actually creating an impact. 

"People believe that all of this work that Wall Street is doing is creating social impact. The reality is that for the majority of products, there's no demonstrable impact on anything."

I'll give an example. You've probably heard a lot about climate risks in the financial system, how business needs to understand climate as a risk. I started realizing that the work I was doing was being so exaggerated. At some point, it goes from aspirational to misleading. And it lulls us into complacency. Then we wait a few years, but we really can't wait a few years. I found in the work I was doing that the majority of the public hear about [climate risk] and they think that we're trying to mitigate climate change, or we're trying to stop climate change from happening. The reality is all they're talking about is protecting investment portfolios from the carnage. They’re not talking about stopping the carnage. 

We put out a report two years ago that said new datasets allow you to understand that the damage of climate change at a very localized level. So it's not just that the U.S. gets hit, but it shows Miami is going to get hammered because of extreme weather conditions, while North Dakota will actually see GDP growth. It's kind of like COVID, a few companies do well like Zoom, but overall it’s clearly terrible. So Miami gets hammered and other places are okay. And you realize that the public hears about that and they don't realize that people in Miami probably think we're trying to help to fight climate change and save their city, when in reality we're talking about selling or getting our money out before it hits. Literally, it's like, let's sell our real estate in Miami and move it to a place that’s not going to get hit. All of it is around adaptation, whether it's your investment portfolio, making sure that you're not going to get hammered by extreme weather conditions, or it’s adaptation in terms of building your model around a world like that. And that doesn't stop anything from happening. That doesn't actually fight the problem.

Is there any way that these funds can be meaningfully green? Or is it just not in the equation?

If you mean green in that they own more green companies, yeah they can do that. But I think that the public and anyone buying those products believes that they're creating some impact that would not have otherwise happened. They can't prove that. What they can actually do is...I'll give you an analogy. If you go to the Middle East, you'll get a lot of the Islamic investors who care about specific ethics — same with the Church of England — so they won't own certain things. So if you're an Islamic investor in the Middle East, you would not want to own alcohol. So I've met clients who don't want to own Diageo or whatever. None of them actually believe that by not owning it, they are actually going to stop alcohol from being...I mean, they're just saying, "We don't want to partake in it." Effectively, most of the mechanisms that they're using, including the majority of them on the public markets, just move share ownership around. It has as much impact as that person not setting out to own the alcohol thing, which is to say, it has no impact. The only way that you actually create an impact has to be through the government. Like with COVID-19, they realized we have to bend down the curve, it's a systemic problem. So we can't rely on the free market and people being responsible. They had to make masks mandatory. They had to close bars because if you left everything open, the U.S. would have lost 14 millions of people, not just half a million. 

"It’s this gold rush because everybody knows that we can put green labels on stuff and it'll sell."

That's the challenge. I saw it very clear looking data across the biggest asset management company in the world and looking at ESGs. And in my case, having been a former investor, I spent most of my career as a hard nosed investor, and then on the other side running the organization I now run Rumie, which is an education technology nonprofit and a passion project. I was looking at the bottom line and seeing, this doesn't work. You really need a systemic solution that applies to everyone, and I think the government does have the ability to bend down the greenhouse gas emissions curve, but right now we're not because a lot of narratives are saying that the market will figure it out itself. I think that it's a good time for business leaders to stand up and say, we can't solve this. We couldn’t solve COVID on our own, we can’t solve this on our own either. If I were playing a sport and the game was getting dirty and people were playing dirty because it helped them win games (which is to say, a lot of businesses are doing stuff and polluting because it's profitable), at some point we need a referee. We clearly need government and systemic solutions to bend down the greenhouse gas emissions curve and then create the heavy investment into the conditions for investment around finding technological solutions to make things happen. That only happens when the government takes a really substantive role and uses its extraordinary powers and democratic legitimacy to do it. In order for that to happen, I think business needs to stand up and say that we need changes. And they don't have to be bad for business, but they can't be business as usual in 2021, given the climate.

What do you see as some of the main changes that need to be made to address climate change and possibly more pandemics in the future? 

I know there's a bunch of really good ideas out there. There's no shortage of great policy ideas. I think first and foremost, the thing that needs to be fixed is a narrative. The narrative basically seems to have been since the 1980s that free markets solve all problems. I think it's ludicrous. I mean, I'm a former investment banker, I have an MBA, I’m a capitalist, but all markets need rules, and I think that those rules need to be fixed and updated for 2021 in order to preserve the public interest. And I do think that that narrative is really important, because a lot of prominent business leaders, including the BlackRock CEO (I probably disagree with him on this point), prefer capital to self regulate. I’m like, I'm a capitalist, but even Adam Smith and Milton Friedman understood that in government you need referees and rules for any competition. I do think that the most important thing is to shift that narrative because you can't enact government policy unless you agree that that’s the answer. 

What I fear is that there are a lot of business lobbies that say they're pro-business, but they’re not pro-business, they’re pro-short-term business. They’re at the business roundtable talking about how stakeholder capitalism is the answer. It’s very very short-term oriented. They know that currently the incentives of the system, in terms of CEO tenure, have gotten so short-term oriented that the reality is CEOs making non-binding commitments to be net zero by 2050 is completely meaningless. They’re gonna be 100 years old at that point. On some level, the business lobbies have an important role to play. They have to remember that business and markets serve society, not the other way around. They have to represent the interest of all their constituents. I do think people working in any big company in their 20s today are not being served by continued inaction around climate change.

"At the beginning, I thought I was wheatgrass to a cancer patient. It's hard to make the argument that green finance is negative, but it doesn't help as much as you thought. There's a placebo."

In terms of policies, the price on carbon definitely has to be thought out carefully because otherwise we get a weak one that's got all these exemptions. It needs to be robust. I think we need other things that are regulatory-driven, like auto emissions for vehicles. I have no doubt that the ingenuity of the capitalist system will work, and car companies are gonna figure out how to meet those because they have to, but if they're not given that incentive, it's just asking people not to pollute. Obviously it's cheaper to burn fossil fuels — we built a $5 trillion global energy system based around that — so they're gonna keep doing what they're doing. I think there has to be real systemic real changes.

Do you think the way the conversation around climate change shifted during the pandemic can lead to any concrete action or policy change?

I honestly do believe that the wake of COVID is the best time to drive significant policy action. A lot of what I was doing at BlackRock, I started to realize over time and particularly after I left that it was actually damaging. Now, you have this public awareness around the dangers of not listening to science. Doing what I was doing, I think at a systemic level, I was contributing to something that was just an illusion or a fantasy, or what I call answering an inconvenient truth with a convenient fantasy. The public is going to realize that we can't answer the inconvenient truth that science tells us with convenient fantasies that allow us to maintain the status quo. We don’t have a choice, but the fact that climate change takes decades has allowed us to maintain this set of fantasies. I think that the moment for real meaningful change is actually going to be this year, because the memories of the fallacy of not listening to science  are so fresh and I think that people realize that we're going to have to do similar types of government-led action to bend down the greenhouse gas emissions curve. My sense is that now is a very good time to do this, when there's an opportunity to build a bit of a political consensus around it. Business has to be part of it because the majority of the capitalism jobs are in the private sector. Business has to have its own debate with itself about how that's going to come about. And I think it's particularly the younger people in business who see that kicking the can down the road is not a realistic solution. We all know that an ounce of prevention is worth a pound of cure. 

"The narrative seems to have been since the 1980s that free markets solve all problems. I think it's ludicrous."

Bringing it back to your career, how did you transition from your career in finance to building Rumie?

I went to school in the States and kind of fell into finance by accident, which is what happens to a lot of people. The banks come to campus and they hoover up people who seem like they could be good at it and don't really know what else to do. For three years, I did distressed debt investing, and then I just realized I wasn't really doing what I wanted to do long term. I got an MBA and my roommate in business school became one of my best friends — he was also working in banking with Merrill Lynch — and he said to me, "We both want to do something meaningful and we’re working in finance." In 2010, he contracted cancer and it moved very quickly, and then suddenly he had stage four melanoma. It was a shock, because we were the exact same age and everything else. So, suddenly, it's not even a question of chances, it's a question of time. He wanted to do something meaningful and decided to build a charity in Kenya. And it turns out, my parents were born and raised in Kenya. He actually founded an organization that uses play for education in Kenya. It was really inspiring for me to see every stage of it and kind of live vicariously through him. It was now or never, and he went and did it. I had the idea for Rumie based on some investments I made 10 years earlier around bringing mobile phones into places like Kenya and other countries as a leapfrog over the lack of landlines. Rumie is a pretty similar idea, but it's for learning and education. It's the least connected people in the world, or the least served. They are the ones who could gain the most from the free teacher learning revolution, but they're usually the least likely to access it. And so we're bridging that gap by making learning free and easy.

What was the moment you decided to leave BlackRock?

It was mainly linked to the family thing, which is that my father-in-law passed and they had some family business stuff, and there was no succession plan. It wasn't a huge company, but it was meaningful for a lot of family members. I transitioned out over a six-month period. That was really the main reason. I, of course, started to realize that there was not a lot of impact out of it, but I didn't really think it was a big deal until after I left. At the beginning, I thought I was wheatgrass to a cancer patient. And I was like, well, it's kind of harmless. It's hard to make the argument that green finance is negative for you to get into it, but it doesn't help as much as you thought. It's only after that I started realizing there's a placebo. And I worked with the university here, we did a study that will be released next month, and we showed people headlines and we found that in the U.S., if you start showing messaging around green financing and business, it creates the impression with people that they don't need government action. So why would we change anything, right? But being responsible is not as profitable as advertised. And the only way that we change that as a business actually goes to the underlying activities companies are doing, and if you're emitting greenhouse gases, you’ve got to pay the cost of that. Suddenly, that business model is a lot less profitable. Wall Street will chase profitability yield wherever it goes, because it's what they're trained to do.

What’s the biggest damaging impact of greenwashing that people might not know about?

It’s misleading to get people to buy a bunch of financial products or products of any type that they believe is creating some impact in the world. That's not actually happening. I think that that's fundamentally unethical. But I think the biggest concern is that it creates a placebo effect that delays action. With COVID, we know now, if you acted quickly you could prevent it from raging out of control. I think that that's the biggest lesson, we need to act quickly on climate. We need to have a real debate about it, because we may end up deeply regretting this.

"CEOs making non-binding commitments to be net zero by 2050 is completely meaningless."

What lessons have you learned that you're now applying with Rumie, through working with BlackRock?

Probably the importance of communicating these messages to people. Rumie is an education player, so we started switching to microlearning. It’s mobile-first and short engagement, because we realized that if you want to reach youth, you have to learn how they use technology. Mobile-first is short snippets of time. The social media companies figure that out, that's why you get a dopamine rush for a five-minute hit, because they know you'll use it waiting for the bus or waiting five minutes for a meeting. They just hack the boredom times. And so what I learned from Rumie was the importance of figuring out how to communicate the message to people, because that's really how you teach. The quality of your message is what helps people understand. Communication to the public around what the problem is and what needs to be done is critically important. Otherwise, you don't really get the political consensus and movement for systemic change.

What are the best and worst pieces of business advice you've ever received?

The best piece of business advice, unrelated to anything I've just said, has been to realize that anything that seems simple from a distance is almost infinitely more complex. This is something I learned out of doing entrepreneurship and starting my own thing. The reality is that 10% of what you do is going to drive 90% of the outcome. You have to be very, very careful to figure out what the leavers are, and often you don't have the data to know, so there’s a lot of intuition. The second piece around that is prioritizing and understanding where to focus your time. It sounds like a really simple lesson, but I feel like people always get bogged down on stuff that's not actually driving the outcomes they want to create.

The worst piece of advice is to just follow your passion alone. I don't think it's good advice. You have to follow your passion where it aligns with your skills. Otherwise, I’d be trying out for Manchester United and failing. The best piece of advice is to find that intersection. That's really where people find fulfilling work.