Bloomberg

In the two years he spent running “sustainable investing” at BlackRock, the largest money manager in the world, Tariq Fancy was an evangelist for the idea that capitalism can help save the planet from global warming.

Now he’s an apostate, convinced that one of the fastest growth areas in financing is a sham. “It’s clear to me now,” he writes in a recent three-part essay in Medium,​ that my work “only made matters worse by leading the world into a dangerous mirage, an oasis in the middle of the desert that is burning valuable time.”

So-called ESG (environmental, social and governance) investing, Fancy argues, merely allows fund managers to charge higher fees for investment products that have “scant or little evidence of real-world impact that would not have otherwise occurred.” So what if these funds divest themselves of big-time polluters, like oil companies? Other investors will happily step in, leaving the companies themselves no worse off. As Fancy points out, “10% of the market not buying your stock is not the same as 10% of your customers not buying your product.”

Besides, he notes, green assets are just a drop in the ocean set against the $360 trillion of global wealth operating in a business-as-usual way.

Tariq Fancy​ Photographer: Galit Rodan/Bloomberg

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Fancy’s argument draws on a sports metaphor. Wall Street is focused on scoring points (maximizing profits) not good sportsmanship (being a responsible investor.) To save the planet, you have to change the rules of the game. Ultimately, that means forcing companies to alter their ways by taxing their carbon emissions.

Fancy, a Canadian born to parents who emigrated from Kenya, turned whistle-blower to spark public debate. In that spirit, I invited him to join a panel on this week’s edition of Bloomberg New Economy Conversations along with Anne Simpson, the director for Board Governance & Sustainability at CalPERS, the California Public Employees System. Also on the show was Noel Quinn, the Group Chief Executive of HSBC.

The funds that Simpson represents are anything but trivial: close to $500 billion in CalPERS, and another $55 trillion (with a “t”) as part of a group that CalPERS helped form called Climate Action 100+, which describes itself as “an investor-led initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change.”

This financial firepower is highly directed. Fewer than 100 companies in CalPERS equity portfolio account for more than 80% of all its emissions. Simpson’s goal is to hold the boards of these companies—steel and cement makers, utilities, aviation companies and so on—accountable. One approach: force them to align executive compensation with “net zero” goals.

Like Fancy, Simpson is skeptical of the green marketing pitch fueling the rise of ESG funds. “Snake oil is as old as the hills,” she said. But Simpson takes issue with Fancy’s contention that government alone must drive change. In her view, regulators should set standards for corporate disclosure on climate change risk but a “partnership between public, private and civil society is what’s needed to get us over the line.”

She can point to specific examples of how business-led coalitions can change corporate behavior. Earlier this year, CalPERS threw its weight behind the activist hedge fund Engine No. 1 that replaced three directors on the board of Exxon Mobil Corp in an effort to get the oil giant to focus more on clean energy.

Quinn of HSBC understands the transformative power of this kind of activism all too well. This year, the bank pledged to stop coal financing in the developed world by 2030 and in developing economies by 2040 after pressure from shareholders to toughen its stance on the fossil fuel industry.

Noel Quinn Photographer: Takaaki Iwabu/Bloomberg

In general, though, Quinn thinks banks should be financing the transition of dirty industries to a clean future, not cutting them off. “If we only do financing of pure green projects and we don’t help the existing industries invest in their business models to change the technology they have, then we’re going to have a very binary world,” he argued.

Yet Fancy’s insider revelations have drawn much-needed attention to industry abuses. His accusations of greenwashing are backed by academic research.

A recent report by EDHEC, one of Europe’s top business schools, found that climate factors represent at most 12% of ESG portfolio stock weights on average. To boost their “green scores,” funds simply underweight sectors like electricity, which does nothing to greenify the economy. Bizarrely, the report finds that ESG funds “favor companies whose climate performance deteriorates over time.”

“From everything I saw,” Fancy said of his time running ESG investing, “being irresponsible is actually profitable, right?” He added that “most of what we were doing wasn’t really creating any systemic change as much as lulling a fantasy that was delaying the action by government required to create that.”