Short-selling is compatible with ESG principles - think-tank

Short-selling is compatible with ESG principles - think-tank

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Short-selling is compatible with environmental, social and governance (ESG) investment principles, a think-tank has claimed.

Financial think-tank Planet Tracker said on Thursday that shorting an unsustainable listed firm is an acceptable strategy for ESG investors and is an important part of the responsible investor’s toolkit.

John Willis, director of Research at Planet Tracker, said: “It is an indicator that sustainable/ESG investing is maturing and starting to use the same investment techniques available to the rest of the market.”

Willis added: “Shorting can accelerate the process of reallocating capital to the sustainable corporates, or those with credible transition plans, and effectively penalise those that are pursuing unsustainable business models – or, even worse, using greenwashing to disguise their activities.”

Planet Tracker conceded that short-selling is a divisive issue. The think-tank said it does not consider the use of shorting as an ESG or sustainable strategy though some argue that short-selling helps expose poor governance.

The think-tank added: “We believe that this (short-selling) will prove particularly valuable to the cause of sustainability in capital markets. Not only would this promote sustainable credentials but also enhance investor returns while doing so.”

Planet Tracker predicts the emergence of more complex sustainable investing strategies that involve both shorting and leverage, but the think-tank warned this should be left to investment professionals because the losses can be huge.

The securities lending industry has been keen to emphasise its ESG credentials in recent months.

Sustainable lending expert Radek Stech and industry veteran Roy Zimmerhansl published in July a draft standard to “strengthen sustainable finance with interconnected collateral”.

The first ESG standard on short activism was announced in March by Global PSSL, a firm driving the sustainable agenda across securities finance.

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