Short sellers mount attack on ESG stocks bloated from green hype

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Hedge fund managers are piling into short positions in ESG stocks as they hunt for bogus green claims and valuations inflated by record stimulus.

Bloated prices can be found “all over ESG,” according to Soren Aandahl, the founder and chief investment officer of Texas-based Blue Orca Capital LLC. He says he didn’t set out to target ESG but, here and now, the “great shorts just happen to be in the ESG space.”There’s “so much capital chasing” ESG assets, but there are “so few good ideas,” Aandahl said in an interview.

Blue Orca rose to prominence in 2018 when its criticism of corporate governance at Samsonite International SA led to the resignation of the luggage maker’s chief executive officer. Announcements that it’s shorting a stock often get followed by flash selloffs. Aandahl is far from alone in shorting ESG stocks, as hedge funds zero in on companies that were supposed to benefit from climate stimulus packages such as the Inflation Reduction Act. Their short bets are turbo-charging a wider selloff in several categories of green stocks that are being pummeled by everything from higher interest rates to supply-chain bottlenecks.

David Allen, head of long-short strategies at Australia-based hedge fund Plato Investment Management, says he has over 100 ESG “red flag” metrics that he screens for before placing a bet. He’s among short sellers to have made a combined $111 million this year through Sept. 21 by betting against GCL Technology shares, according to data provider Ortex.

Hitomi Kimura, an analyst at Bloomberg Intelligence, says the slump in clean energy stocks over the past year is in large part due to “macro drivers” rather than “fundamentals.” But the upshot is that some may end up being removed from exchange-traded funds. A case in point, according to Kimura, is Taiwanese solar conductive-paste maker Gigasolar Materials Corp.

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