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.
Found this useful?
Take a complimentary trial of the FOW Marketing Intelligence Platform – the comprehensive source of news and analysis across the buy- and sell- side.
Gain access to:
- A single source of in-depth news, insight and analysis across Asset Management, Securities Finance, Custody, Fund Services and Derivatives
- Our interactive database, optimized to enable you to summarise data and build graphs outlining market activity
- Exclusive whitepapers, supplements and industry analysis curated and published by Futures & Options World
- Breaking news, daily and weekly alerts on the markets most relevant to you