Market

A Critique Of Tariq Fancy’s Critique Of ESG Investing: An Interview With Clara Miller

In a functioning democracy, it is important to have an open debate between people with very different views. This is especially true for the field of sustainable investing since it can be an ideological hot button subject to criticism from both the extreme right and the extreme left. The former view sustainable investing as some kind of thinly veiled Communism, at worst, or well-intended but misguided philanthropy that reduces legitimate financial returns at best. The latter see it as a wolf in sheep’s clothing, a cynical ploy by rapacious capitalists to call a fund green and charge higher fees for it while the money actually does nothing to make the world a better place. Done right, sustainable investing—across all asset classes in both the public and private markets—delivers both the appropriate risk-adjusted financial returns and contributes to addressing the targeted environmental or social issue.

Tariq Fancy’s long essay, “The Secret Diary of a ‘Sustainable Investor,’” has received a great deal of attention in the press. Much of this is due to the fact that he was the CIO of Sustainable Investing at BlackRock for a little less than two years. I met Mr. Fancy soon after he’d joined BlackRock at a very nice lunch in Boston with his boss Brian Deese, now director of the National Economic Council in the Biden administration. I had another conversation with him in Toronto when he told me he’d be taking a leave from BlackRock for family reasons, which he did in September of 2019. I have not talked to him since his essay was published. I think he’s made some useful points, although I don’t agree with all of them.

But it is from disagreement that we learn. For example, my friend Andy Behar, President of the NGO As You Sow, had some major disagreements with a piece I wrote with my colleagues Drs. Stephanie Mooij and Judith Stroehle on four strategies for effective engagement. He expressed his views in a response. While I didn’t agree with everything he said, I think he made some excellent points, and I gained some valuable insights from him.

Mr. Fancy has had both his supporters and critics. One of the latter is Clara Miller who recently published “ESG: The Fancy-ful Narrative.” Ms. Miller is someone well qualified to opine on Mr. Fancy’s views. She was the founder and CEO of the NGO Nonprofit Finance Fund for 27 years and then CEO of the F.B. Heron Foundation for nine years. I met Ms. Miller when she joined the board of the Sustainability Accounting Standards Board (SASB) when I was the Chairman and she served for seven years. (SASB is now called the Value Reporting Foundation [VFR] after its merger with the International Integrated Reporting Council). She is a good friend, so I asked her if she’d be willing to sit down with me for an interview. I wanted to understand better her reflections on Mr. Fancy’s three-part essay. She kindly agreed to do so.

Eccles: What prompted you to write your critique of Mr. Fancy’s “Secret Diary?”  

Miller: This one got me! The sheer waste of time, talent, and of the power he had at BlackRock laid bare in this supposedly epic tell-all was extremely disappointing to me.

To start with, Fancy was late to the party, and he didn’t take the time to meet the folks who were already there. If he had become current in the field, he would have known that there are (and have been, for years) tons of similar critiques of ESG, impact investing, sustainable investing, mission-related investing—you name it. Many are informed and useful. Some are a bit discouraging, like cynicism and fraud. They are accepted headwinds. The problem was that he piled on uncritically to many of these old narratives and did so in a vacuum of experience, knowledge, and information. 

Eccles: But weren’t some, if not all, of his criticisms basically fair? 

Miller: Yes. Time-worn, but fair, and I say that in my piece. It’s not that he’s always wrong. It’s just that his revelations are revelations to him, mainly, and neither additive nor helpful to the larger cause. And while the problems are real, the “so what?” and the “now what?” are old ideas and so don’t help us move forward. He indulged in an expensive two-year voyage of discovery of this old news. Instead of doing that, he could have applied his mind to a current problem at the get-go. 

Many of the same critiques have spurred the field to up its game and also to chart its very real limits. And many of his solutions are shared by the field and up and down industries.  

For how many years have folks been talking about carbon pricing? It’s not new news. Fancy’s faith in government is touching, but has he met the U.S. Congress lately? Believe me, if the public’s belief about ESG is actually the only thing between Congress and passing a carbon tax, I’ll eat my fully-biodegradable sun hat. 

Eccles: But most of his criticism is aimed at the investment world. Could he have thought all the insiders at BlackRock were as skeptical and cynical, even as those he initially spoke with? 

Miller: It’s possible. And maybe I’m just a starry-eyed country girl, but I believe that there’s talent and brains in the for-profit sector, and BlackRock has employees who know this field well and have contributed to it. I’ve met them, so why didn’t Fancy? It should not have been Groundhog Day on these issues for the CIO of Sustainable Investing at BlackRock.

It’s truly puzzling that Fancy didn’t talk to his natural allies within BlackRock. He didn’t have much background in ESG when he took the job and then didn’t do much homework. Result: This is the story of, at best, a babe in the woods.

Eccles: But he made many contacts, no? And learned about ESG in his travels, undoubtedly. Maybe he just has a different view. 

Miller: Yes, it looked that way to me at first, too. But he could have prepared with a stronger set of tutors. In his words, he “toiled desperately to make the investment mechanics of achieving both purpose and profit meet the world’s lofty expectations” (Heroic!). In the process, he consulted a puzzling choice of experts, none of them, apparently, with much experience in the field. (They do make for colorful reading in Fancy’s essay, however). 

Why was he doing this himself? Didn’t he have staff? Colleagues? I know people there and elsewhere who have done and are doing this work and could have cut down on the desperate toiling. I can’t imagine he really lacked for resources.

A give-away was that he referred to the TPG Rise Fund as the “best-known market standard…impact investing,” and called it “groundbreaking,” while saying that Bill McGlashan had ascended to “near pope status in the impact investing world.” Bill went to jail for the bribery in the college admissions scandal and is best known in the impact investing world, as the saying goes, for being a legend in his own mind. TPG Rise is not and never has been ground-breaking. Fancy’s gullibility speaks for itself. Enough said. 

Eccles: Okay, but that doesn’t get us to his ability to influence the world from his perch. Do you think he did enough to leverage the role he had at BlackRock?

Miller: From the outside, and given his access, it sure doesn’t look like it to me. Like there’s CEO “Larry [Fink],” (now I know that ‘everyone’ calls him Larry, I will take liberties). Now why wouldn’t Tariq check in with Larry to discuss his worries about the life-threatening fraud of ESG financial products being marketed widely in the financial world, i.e., “wheat grass for a cancer patient?” Why didn’t he share his worries about the moral hazard of seemingly fixing climate change while not really? One would think that would concern Larry, by all accounts.

Eccles: But maybe that would have been a bridge too far. I don’t know the chain of command at BlackRock so maybe Mr. Fancy just didn’t have access to Larry?

Miller: Well, he certainly tiptoes around his relationship with Larry, and however adamant he may be about social justice now that the scales have fallen from his eyes, he does make it manifest in his account that he didn’t think “it wasn’t his place” to speak out at BlackRock. 

Eccles: I guess I’m thinking that there might have been other avenues for advocacy than internally, or even publicly. He does seem to ravage the Business Roundtable (BRT), for example. 

Miller: Well, he spent a fair amount of his narrative telling anecdotes and dropping names that implied extraordinary access to people in power—he described those attending a  meeting at the Shangri-La Hotel in Tokyo as “a snapshot of the Davos elite.” This is where he quotes Phillippe Hildebrand (ex-head of the Central Bank of Switzerland, and Vice-Chair of BlackRock): “’We can show how finance can play a constructive role for society!’ (Is this path-breaking?) And he reveals that the BRT members pledge “green” and “stakeholder value” publicly and continue or increase carbon emissions, tax avoidance activities, and similar bad faith actions publicly (Shocking!) And, gasp, there’s not really a free market! (Holy cow, that’s the limit!)

Suffice it to say that he may be the last one to have discovered that the rules need to change. Yet if he had been paying attention, he might have discovered that the European Union is making progress, slowly, admittedly, but is ahead of the U.S. in that respect. 

Eccles: But I think Mr. Fancy is sincere, and so do you, I think. So what might be salvaged from his Diary? 

Miller: Well, he could take his considerable sales skills, rolodex, and enthusiasm and use them to persuade, cajole, and generally push those in power to make positive steps forward, including but not confined to, the carbon tax/carbon pricing and robust regulation of enterprises up and down the market. He might also use his point of view to provide critiques to strengthen products and processes that will guide new rules for the “DNA” of the market and the economy.  

And if he can embrace some other contexts, I think he’d be even more effective. I was touched by his description of COVID and Canada, but tempted to say, “this isn’t Kansas (Canada), Dorothy, it’s the USA (i.e., Oz).” I completely agree with him on the government front, and think there is hidden strength there, even here in the U.S. But the Congress is in crisis and has been for several years. We must work around that, and rally what troops we have with that in mind. Unenforced and unenforceable legislation gets us nowhere.

A few years ago, I was speaking to High Water Women, a Wall Street group, and was asked the question, “does the Heron Foundation (I was President at the time) have a public policy program?” I found myself answering, after noting that our grantees, unlike us, had policy expertise and had made headway in policy, “We don’t have a policy agenda in Washington at this point. I mean, now that the government is in the hands of the corporations, we might as well just go directly to the corporations.”

 Eccles: If you were Mr. Fancy…or if you were just yourself…what would you want to say to the BRT, Larry, and all those people in the “Davos Snapshot?” 

Miller: My powerful friends. Please act together to:

·      Stop making pledges. Report performance. And require the same of portfolio companies.

·      Lobby for a carbon tax/carbon pricing. 

·      Stop lobbying against climate legislation, and lobby for it

·      Stop financing long-term carbon-positive projects

·      Require portfolio companies/your companies to use SASB disclosure metrics (the Value Reporting Foundation) alongside those from Global Reporting Initiative relevant to shareholder and stakeholder value creation. There is math, transparency, and real standards there. SASB/VRF and GRI are the ONLY standard setters. Principles for Responsible Investment is not one. 

·      Pay your taxes

·      Pay your workers at least enough to avoid public assistance

·      Pay close attention to the equity in your supply chain. 

In other words, walk your talk. 

Eccles: And since I promised to ask you this, what kind of reaction are you getting?

Miller: Well, the piece is on Impact Entrepreneur, so I expected to get the most reactions on LinkedIn from the nonprofit and social impact crew. Actually, the leading sources of my (thus far) 10,000 views are from Goldman Sachs, Morgan Stanley, MSCI, LGIM, AGF, IFC JP Morgan and EY…and there was a good contingent from Toronto. Lots of thumbs up, especially from (of course) long-time colleagues. As a friend from Wall Street once put it: who cares about the market if everybody’s dead?

Eccles: Thanks for taking the time to share your views with me. I learned from you, and I hope others will as well. Including Mr. Fancy.

Most Related Links :
newsbinding Governmental News Finance News

Source link

Back to top button