Investments in nature-friendly corporate measures globally count on tens of trillion dollars. Sustainable business has become a fashion motto, but also an opportunity for investors to capitalize on failed firms in which sustainability is only a facade.
Investors in some hedge funds have sensed the opportunity in an environmental approach promoted by many global firms. However, it is not on the winner, but on the renegades, that they could profit by speculation on their stock prices.
According to Reuters, their bets are looking for investors such as Carson Block from Muddy Waters, Josh Strauss from Appleseed Capital, and Chad Slater from Morphic Asset Management.
Their chances are based on the argument that rising stock prices are supported by distorted sustainability information and so-called “greenwashing“. This term refers to the misinformation of companies in order to present their behavior as environmentally responsible. “Greenwashing is currently out of control,” says Slater, whose hedge fund is betting on stock price rises as well as their fall.
Sustainability as a plain buzzword?
Investor ratings, which reflect how green firms are, are not always objective, according to speculators. We are talking about the so-called ESG environmental standards that analysts follow when advising which companies to invest in. On the contrary, speculators are attracted to companies with high scores, which should be a guarantee of sustainability.
According to Reuters analysis, the top five firms in Britain, France, Germany, Spain, and Italy speculate on a decline more often than companies with the lowest ESG rating.
Diederik Timmer, vice president of Sustainanalytics, ESG’s main data provider, says that the key issue is weak regulations that regulate what sustainability measures and risks businesses need to disclose, as well as their fragmented nature.
The reliability of this indicator for investors is doubted by the two largest global asset managers managing nearly $ 1 trillion in assets, who preferred to create their own rating system.
ESG data providers compile company evaluations based on many measures ranging from energy management, gender composition to data on the pay gap. However, media reports, as well as information from NGO websites, also have an impact.
According to the Global Sustainable Investment Alliance, more than a quarter of globally managed assets are considered “sustainable”. Overall, their volume is estimated at $ 31 trillion.