“They’re out to push their interests. That’s what they’re optimized to do.”
A conversation with Tariq Fancy, former chief investment officer for sustainable investing at BlackRock
Tariq Fancy is the founder of the nonprofit organization Rumie and the former chief investment officer for sustainable investing at BlackRock. Since leaving BlackRock, Tariq has become an “ESG whistleblower,” as Bloomberg described him,1 outlining his critiques in a three-part series, “The Secret Diary of a ‘Sustainable Investor,’” as well as The Economist, USA Today, the Financial Times, and other outlets.2
Tariq is also a founder of #fixtherules, a new effort advocating for a systemic approach to solving systemic challenges. Shortly after this interview was published, Tariq spoke at TEDx Toronto, where he explored how to reshape our economic and political systems to make sure capitalism and financial markets serve the public interest. You can watch his speech here: “I’ve seen the worst of capitalism—here’s how we fix it.”
The excerpts below are from a conversation we had in March, when I interviewed Tariq for my article in The Lever, “For BlackRock, The Climate Crisis Is a Win-Win-Win.” This conversation has been condensed significantly and edited for clarity.
ADAM: BlackRock has political power, financial power—influence in every way imaginable. From your experiences at the company, is there anything that they are doing to bring different viewpoints and the voices of more marginalized or less well-represented groups into these conversations [about public policy issues such as climate change]? BlackRock is always going to have a seat at the table.
TARIQ: I would doubt significantly that they are pulling in other voices. Not because I don’t think that they’re good people. The reality is, unless someone’s pressuring them and saying, Hey, you need to do this. You need to consider justice, and different groups, and the implicit power dynamics—I just don’t think they ever really think about that.
It’s not a BlackRock-specific thing. I don’t think any of these firms do. I think [you] go in[to events and meetings with public officials] with a clear goal of what you’re trying to get out of it. Almost always that’s going to be aligned with your strategic interests for the firm. For the policy team, it’s going to be, Make sure we’re not designated as a systemically important financial institution.3 Make sure that the carried interest tax loophole doesn’t [go] away.4
People go in with a specific playbook. They’re trying to achieve something, and it’s always aligned with the firm’s goals. Including a bunch of other groups that they almost certainly know in most cases are going to add layers of probable complication or cost for them? I suspect that they would say, Listen, it’s not our job to do that. The government should be getting everybody in the room. Us and them.
They know they have more power. They have corporate political spending that’s undisclosed because they fought off a shareholder resolution [so] they don’t have to disclose it.5 I’m not sure it’s in their interest to acknowledge [their power], and then make it their responsibility to say, We should include people.
ADAM: Would they be ever willing to propose some sort of policy solution that might not benefit, or would even go against, their financial interests or their clients’ financial interests? Or is that so contrary to what they see as their fiduciary responsibility that it’s off the table?
TARIQ: I can’t see them doing that. What’s fascinating about Larry Fink’s annual letters—for a number of them, it’s worth looking at the first line in the letter. We are a fiduciary to our clients.6 It’s an odd thing to say, right?
It’s not the most exciting way to start a letter. Through my day job running a nonprofit digital [organization], I talk to young people. The second you mention “fiduciary” anything, their brains turn off. They’re like, Nope, I don’t need to know that.
[But] it strikes me as very intentional. [Larry Fink]’s going to have a letter talking about a lot of lofty goals—ESG, climate change, and so forth. [The fiduciary responsibility statement] is almost like a legal disclaimer up front.
I don’t think they would do anything to breach their client interests. That’s precisely the fundamental problem. Because they are fiduciaries, and because they’re aligned to that—which is what they should be doing; it’s legally obligated—what ends up happening is that when purpose and profit don’t overlap, [BlackRock] is always choosing profit because of fiduciary duty. That’s where I’ve always had this massive issue with them. It’s like, Just be honest. Just [say], We go for profit, and it turns out that profit and purpose don’t overlap that much.
The problem is the second they say that, then everyone else says, Oh, we get that. That’s externalities. That’s pretty much Econ 101. These are externalities that need to be regulated and internalized by the government. [Corporations] don’t really want that, so they say that purpose and profit overlap and ESG is good for returns. It’s the centerpiece of delaying regulation.
You don’t get paid to make the world a better place. [Corporations] are only ever going to advocate for stuff that’s good for them. If it happens to overlap with what stuff’s good for the world, then they’ll talk about that twice as much. It’ll get a bit of an extra oomph because it’s got a marketing and virtue-signaling benefit. [But] I would be shocked if they would do [something] because it’s the greater good but doesn’t serve their financial interests. I don’t think any of the firms would do that.
ADAM: One of my fascinations with this fiduciary question is the way [companies] seem to wield it depending on which argument serves them best. If they’re getting pressure from the right—You’re too “woke,” or whatever—they can say, We think it’s our long-term, fiduciary responsibility to take into account climate change and racial injustice and other social or environmental issue[s]. [They] use that [argument] as a defensive tool. And then if they get pressure from the left, they can say, We can’t do any more because we have this fiduciary responsibility to clients and shareholders. So [the fiduciary argument] serves them to defend [against] critics from every side.
TARIQ: I don’t understand why the right wing thinks it’s “woke.” It’s like, Did you read the latest IPCC report?7 I’m not sure where, exactly, the evidence is that this is a “woke” outcome. Besides words, which [is] most of what that stuff [corporate responsibility pledges] is.
It strikes me that [companies] are taking a lot of heat from the left. They’ll generally appease the people who are growing in anger because of the [lack of] overall results and saying, No, we’re on this; we’re going to do it!
And then, because they have to navigate the fiduciary piece, they’re incentivized to always say profit and purpose overlap. That way they can claim to do something about it while also not tripping the fiduciary tripwire. Then the right will just be like, Oh, it’s money-making. It’s capitalism. If you can tell them, Listen, I can make more money by marketing to millennials who care about these causes—I don’t think anyone on the right says Don’t do it if it makes money.
The challenge is, ultimately, that those things [“making money” and “making the world a better place”] don’t overlap. You say one thing, the left gets mad. Say another, the right gets mad. Talking about climate change and social issues and all, and then saying, By the way, it’s because they overlap, and it’s totally aligned with fiduciary duty—it’s an interesting way of getting that marketing and branding benefit and appeasing the left, while staying within the confines of whatever they’re doing.
That is, fundamentally, one of the things that worries me the most. It creates this disconnection between talk and action. Every single year, they’re saying all these things. Then in the end the results never actually add up. The concern I have is that that actually destroys the public’s faith in capitalism. Eventually they say, This is always talk and no action, so capitalism must not work.
ADAM: That kind of gets back to one of your original points: Just be honest about what you’re doing and what you’re not doing. That might go further to restore trust in capitalism than any high-profile pledge that they’re clearly not following through [on].
TARIQ: Exactly. A promise is fine. But if it’s a promise that can’t be fulfilled because the thing doesn’t even make any sense or work, then it’s really self-serving. You’re benefiting yourself by kicking the can down the road on regulation and sell[ing] a bunch of green products at high fees. But you’re not only endangering the planet—the costs are getting amplified onto the youngest [and] poorest—but you’re destroying the faith in the system that we actually need to eventually decarbonize and get the innovation to scale because people are just saying, Capitalism must not work.
ADAM: One of the main points of [my recent article in The Lever] is that just by talking about climate change and being seen as a leader tackling it—at least from a corporate perspective—they’re positioning themselves [to] hav[e] an impact on how public institutions respond to climate. Do you think that this is a conscious effort that the firm makes to say, We need to be seen as talking about this, so we can be at the table helping shape the public response? And not in a conspiratorial way. Just, We want to be able to have a say in what solutions move forward and what solutions don’t.
TARIQ: I would be surprised if any financial institution were not thinking about it that way. If they know that there’s going to be some level of regulatory change around a massive part of the economy, and they [BlackRock] are 10 trillion [dollars] in the market, they’re going to be all over it.8 Whether it’s regulations around how funds are classified—green, not green, whatever—really, anything [along] those lines. It’s natural. It’s what [a corporate] policy team does. In any conversation like that they’re out there to push their interests. That’s what they’re optimized to do.
When change happens, you [have] a seat at the table because you’re so big, and you’ve expressed an interest in doing the right thing. You could imagine that people will say, BlackRock’s on the right side. They’re trying to do climate. Let’s go talk to them because their CEO’s a leader on this. Purely from an optics [and] marketing perspective. Then it has increased influence in the policy discussions.
The marketing and branding is not insignificant. It has value not only to the firm as a brand, going and dealing with large governments and large clients. It also has a lot of random benefits you don’t think about, like employees, for example.
ADAM: Yes, absolutely.
TARIQ: It’s a huge thing. When I joined [BlackRock], I got all this outreach from people [within the firm]. They made an internal announcement. It was a lot of people on the sales side. They were like, Just in time—I have a meeting next week, and they wanted to know what to say.
A few of them told me, I’d seen the leadership we were taking on this. It made them happy to join the firm and be part of it. That was very clear to me that that was important from an HR perspective around recruitment, retention, [and] morale.
ADAM: It’s such a powerful and insidious thing. One of the things that I’m focusing on in [my research] is how companies use promises of purpose and working on social issues [to attract employees]. [It’s] the classic McKinsey draw: Come learn this world-class set of tools and then go change the world after a couple of years.9 It’s a really powerful thing, especially for millennials and, I assume, for Gen Z as well. Find your personal purpose. Bring it to life here. But none of it impacts what the business actually does or how they make money. It’s purely an employee thing.
TARIQ: I did “profit” for many years in finance. I left to found a nonprofit that was purely “purpose.” My conclusion after going there [to BlackRock] and leaving was that, frankly, I’d done vulture investing on one end [and] a nonprofit for no salary for years on the other. And it was very clear to me that what I was seeing [at BlackRock] was “profit.” It was the exact same profit model I had always known, [but] with “purpose” marketing layered on top.
That’s really worrying. Because if purpose is only marketing then the whole industry is just talking the talk. They don’t walk the walk. Purpose in particular is like a completely meaningless word, or at least the way it’s used in corporate-speak.
Learn more about Rumie, #fixtherules, and Tariq’s commentary on sustainable investing. If you’ll be in Toronto on May 17, head here to get more info about Tariq’s TEDx talk.
https://www.bloomberg.com/news/newsletters/2021-10-02/esg-whistleblower-calls-out-wall-street-greenwashing-new-economy-saturday
https://www.economist.com/by-invitation/2021/11/04/tariq-fancy-on-the-failure-of-green-investing-and-the-need-for-state-action; https://www.usatoday.com/story/opinion/2021/03/16/wall-street-esg-sustainable-investing-greenwashing-column/6948923002/; https://www.ft.com/content/fe148362-595f-42ce-a967-c3cc333c82f1
https://www.wsj.com/articles/one-firm-getting-what-it-wants-in-washington-blackrock-1461162812
https://www.levernews.com/under-neal-a-wall-street-tax-break/; https://www.barrons.com/articles/carried-interest-tax-break-51632433093
https://www.citizen.org/news/blackrock-shareholder-res-disclosure/; https://campaignforaccountability.org/new-report-details-how-blackrock-fought-off-government-regulation-by-spending-big-in-washington/
https://www.investopedia.com/terms/f/fiduciary.asp
https://www.ipcc.ch/report/ar6/wg2/
https://www.wsj.com/articles/blackrock-now-manages-over-10-trillion-in-assets-11642162013
https://prospect.org/power/mckinsey-for-kids-insidious-tool-kit-spreading-corporate-influence/