Why ESG Is No Alpha Strategy

Sustainability investing isn’t yet fetching higher returns for investors. Here’s why.

- V. Keshavdev

LARRY FINK, CEO of the world’s biggest investment manager with more than $10 trillion in assets, BlackRock, describes it as the “greatest investment opportunity of our lifetime,” But Tariq Fancy, who spearheaded sustainable investing at BlackRock before quitting in 2019, went public with his angst about why he felt ESG (environment, social and governance) investing was nothing but just a fad. “It was creating a dangerous placebo that was delaying government action, it was misleading the public, especially in North America,” Fancy tells Fortune India.

ESG investing is generally accepted as a holistic way of investing that ensures economic progress is entwined with positive environment and social outcomes. Yet, ESG remains a big black box around which the Street and rating agencies have made their own rulebook. From FY23 onwards, the Securities and Exchange Board of India has mandated the top 1,000 companies by market cap to include Business Responsibility and Sustainability Report or BRSR in their annual reports.

“ESG is just a newer version of what was defined as sustainability,” says Chaitanya Kalia, partner and national leader, climate change & sustainability services, EY India. “The Brundtland Commission coined the term — people planet and profit — and down the line, profit got changed to governance as investor focus increased.”

That’s showing and how.