Shorting Your Way to a Greener Tomorrow
From AQR Capital Management, their take on how proper treatment of shorting matters for the ultimate goal of responsible investing: to effect change.
Using short selling to reduce carbon exposure, to get to net zero or to achieve other ESG goals, is a vital tool for ESG investing. It’s also a tool that can readily be incorporated into portfolio construction. For those who want their investing to lead to a lower carbon (and better S and G) world, this is one important tool to help us get there.
When it comes to calculating a portfolio’s ESG score, we have heard arguments ranging from “ignore the shorts” to “net them against longs,” and, my favorite as it’s creatively insane, “pretend the shorts are actually longs.” To say there is confusion would be an understatement.