brief INSIGHT by Alternative Investment Management Association (AIMA)
| The Alternative Investment Management Association (AIMA) and international law firm Simmons & Simmons have worked with some of the world’s leading alternative investment managers to examine how short selling can be used in the context of responsible investment.
The paper describes how hedge fund firms can use their unique investment abilities to accomplish an important goal of responsible investment: protecting against undesired key risks such as climate risk. The example of ‘carbon footprinting’ is used. By properly accounting for the carbon exposure of both their long and their short portfolios, alternative investment managers and their investors can gain crucial insights into how exposed their investments are to climate change and the attendant policy changes. Short selling can thus be used to accomplish a crucial goal of responsible investment: protecting investors from ESG risks.
Short selling can also be used to create positive impacts for the broader markets. Short selling campaigns are often triggered by ESG concerns such as questionable issuer governance, poor employee safety practices, environmental issues and even alleged human rights abuses. Alternative investment managers have a long and successful track record of discovering governance failures, as witnessed by the recent Wirecard scandal. They use this same expertise to expose environmental and social failings of issuers, creating more transparent, safer markets for investors around the world.
AIMA CEO Jack Inglis commented: “Alternative investment managers have always been at the forefront of investment innovation. Today, they are using one of their defining abilities—short selling—to protect their investors from novel risks, and to make markets as a whole safer. We are happy to see this fact gain increasing recognition from investors and leading organisations such as the PRI, and we have no doubt that short selling will soon be seen not just as valuable for responsible investment, but essential.”
Darren Fox, Partner, Simmons & Simmons: “We’re delighted to have been able to assist AIMA in producing the Guide. To dismiss short selling as not having a role to play in the context of ESG would be naïve. One only has to look at the recent events relating to Wirecard to realise that short selling has an important role to play within the ESG framework. AIMA has a vital role to play in fostering the debate on this very important issue and the new Guide should help to stimulate and move forward that debate.”
| the full paper is available here
| All opinions expressed are those of the author. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.