BlackRock (BLK) is scrapping Environmental Social Governance (ESG) investing and instead pivoting to focus solely on the environmental component, rebranding it as "transition investing." Tariq Fancy, Former BlackRock Chief Investment Officer of Sustainable Investing and Founder of The Rumie Initiative, joins Yahoo Finance Live to discuss this strategic shift.

Fancy says the criticism of ESG "expedited a process that was probably going to happen anyway." He notes that ESG investing "lumped together a whole bunch of ideas" that were not inherently similar. Moving just the environmental aspect into "transition" investing is "a natural way" for markets to "move forward," in his view.

He explains that BlackRock "has all different kinds of investment groups" aiming to create "additionality" or "real world impact." Fancy believes "the backlash" will allow BlackRock to hone and refine its sustainable investing strategies accordingly.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

[AUDIO LOGO]

JUIE HYMAN: ESG investing seems to be getting a new look as the trend faced growing political criticism. But it seems there's still a lot of excitement focused on the E in ESG, just under a new name-- transition investing. BlackRock, the world's biggest asset manager, has been pumping billions into clean energy companies and infrastructure projects. Its former chief investment officer of sustainable investing is joining us now, Tariq Fancy.

Thanks so much for being here. So as we look at the sort of rebrand that this has been getting, I guess, first of all, are you surprised by it that the industry has seemed to bow to the backlash?

TARIQ FANCY: Not really. I think the backlash just expedited a process that was probably going to happen anyway, because the way to think about ESG is that it's an acronym that was created out of a report. In 2004 called who win-- who cares wins.

And it was sort of a UN-affiliated report that made the argument that companies that are responsible will also perform better. Like, think of it like a competitive sport, where you say that the clean players will also do much better and score more points. In practice, you're just lumped together a whole bunch of ideas that are not that similar in practice, right? Gender policies, board composition, carbon emissions, and it was largely intended to attract progressives.

And I think on the backlash of-- on the back of a backlash against greenwashing, which came from the left, and a backlash against politicizing investment processes that are governed by legal obligations like fiduciary duty coming from the right, this is a natural transition where you just kind of take the parts of ESG that actually somewhat do make sense and dispense with the marketing and move forward.

JOSH LIPTON: So it sounds like you think BlackRock is kind of making a smart move here, sort of narrowing its focus like, OK, we're going to stay on-- we'll stick with climate investing, but corporate behavior social issues, not so much.

TARIQ FANCY: I think so. I mean, I think the way to think about BlackRock is it's a massive organization that has all kinds of different investment groups working on different verticals and different geographies. Many of whom actually join the firm through acquisitions over the 30 some odd years that it went from nothing to the largest investment firm in the world.

So a lot of them are doing good work. And a lot of that work actually creates additionality, right? So there's additionality means real world impact that would not have otherwise happened. For example, the global renewable power franchise. But the challenge with BlackRock overall is a massive behemoth that also has trillions of dollars of public market vehicles that, frankly, you know, if you invest in them, no additional capital goes towards creating something new, such as a renewable power plant. It just allows fund managers that have baskets of already traded markets and shares in secondary markets to create a slightly greener basket, right, so that they can bifurcate the population a bit and charge a bit of a higher premium price for, you know, the types of commoditized vehicles that progressives like. And now we're seeing anti-ESG funds from the right.

But within what BlackRock and any firm is doing in the ESG space, there are things that are interesting. And I think the ESG backlash has done us the favor of rationalizing that, so that the areas that make sense and that people can rely on, we can do more of, and we get rid of all the sort of marketing gobbledygook that was often used to just paint commoditized vehicles green, so you could get a fee bump.