The notion of “sustainable investing” had a bumper year in 2021. Aligning investments with climate goals – no fossil fuel companies, for example – promises a good financial return, while benefiting the planet. But is it too good to be true? I asked Tariq Fancy – CEO of non-profit digital learning charity Rumie and ex-head of sustainable investing for investment company BlackRock. Last year Fancy publicly denounced sustainable investing as a “dangerous placebo that harms the public interest”.
I read a claim recently – from research led by Aviva and Make My Money Matter – that turning your pension “green” is 21 times more powerful in cutting your carbon footprint than stopping flying, becoming vegetarian and moving to a renewable energy provider combined.
That’s ludicrous. Our individual actions reduce real-world emissions. Selling shares in polluting companies does not – it just means someone else buys those shares and owns those emissions.
But sustainable investing must be doing something good?
It is, in specific corners of the market. But those aren’t corners the average person can get into, commonly with pensions. The proof is in the pudding. Green investing has increased massively, yet emissions seem to be increasing alongside it. Since the 1980s, people have been beholden to a narrative that the free market will magically self-correct. But climate change is at its core a market failure, and it requires regulation. Investing in ESG falls into that trap.
ESG investing – that’s a type of sustainable investing that involves buying shares in companies with a good score for “environmental, social and governance” …
ExxonMobil used to have the same ESG score as Tesla! Because the scores are a mashup of different things. ExxonMobil has good governance and a diverse board, so they’re good on “G” and “S” but terrible on “E”.
So when someone is investing in ethical or sustainable funds, they may find they’re investing in companies they’d be horrified by. How can this be OK?
There hasn’t been any regulation, though increasingly there is in the EU. It’s like organic fruit 30 years ago. If no one polices what it is to be organic, then someone figuring people will pay more will put the organic sticker on.
Tariq, this all sounds a bit evil.
The economy is structured according to what’s profitable. That’s not because people are bad, but the way the system is designed. Fund managers have a legal obligation to focus on maximising profit. And because they’re managing someone else’s money, you don’t want them thinking about values, because everyone has different values.
I see why you’ve said this system is not going to save the planet.
A lot of the theory comes from divestment – that if I no longer own something, I’ll make the world better. But it makes no sense in practice. I’ve met Middle Eastern ethical investors who say, “We’re against drinking, we don’t want to own alcohol companies.” But they didn’t believe that by not owning them they stop people in France drinking wine. As long as something is legal and it makes money, someone will own it. Our greatest power is not as consumers but as voters. Only the government has the power to put a price on carbon, to set vehicle emissions limits and new efficiency standards for buildings. It’s wasting time, too. The eight-year-old in Bangladesh who has no carbon footprint is going to bear the brunt while Wall Street kicks the can down the road. It’s morally unconscionable.