Hedge Funds Chasing ESG Billions Get Help From Researchers

Hedge funds eager to prove that short-selling is a legitimate ESG strategy just got some fresh material to back their case.

A study published by the Managed Funds Association indicates that targeted short-selling campaigns could slash up to $140 billion in capital expenditure at the biggest carbon emitters in the S&P 500 Index by pressuring them to clean up their acts.

“While the role of short-selling in ESG has long been a topic of conversation, our paper provides quantitative evidence showcasing its impact on the cost of capital for a company and effectiveness as a tool for integrating ESG into a portfolio,” Bryan Corbett, chief executive of MFA, told Bloomberg.

The analysis by MFA, which represents the alternative fund management industry, feeds into a heated debate on the extent to which short-selling can genuinely be used to support environmental, social and governance goals. A recent report from MSCI Inc. found limited evidence to back the claim that shorting raises capital costs, and questioned its value as an ESG strategy. But the hedge fund industry has been vocal in its defense, as firms jostle to ensure they don’t miss out on the billions of dollars flowing into ESG.