May 2021

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Activist short sellers cannot yet point to environmental, social and governance (ESG) reporting alone as a reason that the market has mispriced the value of a security, although the day is growing nearer when this will be possible. The key factors for a successful strategy will be driven by a combination of popular opinion and data availability.

ESG has grown tremendously in popularity with long-only investors. At the same time, each investor’s definition of ESG, not to mention regulatory definitions, may vary. This means that the concept of investing in ESG does not always line up with the expectations of institutional and retail savers, and in some cases could be substantially different.

This report explores the nexus of short selling and ESG with a focus on how close ESG is to being a true focus area for short seller reporting. We spoke with activist short sellers, industry associations, academic researchers and data providers to learn where the market stands and how they viewed the evolution of short selling and ESG. We also heard about the differences between theories of price discovery and the actions of the market in the post-COVID-19 era. The conclusions show just how far activist short sellers are from taking on ESG as a cause of engaging in a trade, and what that means for market integrity.

This report should be read by any market participant with an interest in ESG investing, securities lending or short selling. This includes hedge funds, institutional investors, corporate issuers, banks and securities finance market participants. The results should assist market actors with formulating their own strategies, responses and marketing in the fast-growing ESG sector.

Table of Contents

  • Executive Summary
  • The Short Selling Environment
  • Theory vs. Action
  • When Can ESG Activism be Monetized?
    • – Green New Deals
  • The Need for Data
  • Who is Leading on Market Intelligence?
  • About the Author
  • About Finadium LLC

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