Greenwashing — an organization’s effort to boast of its environmental, social, and governance credentials when it’s actually lacking in that department — is one of the primary knocks against ESG as an investing style.
Greenwashing fortifies critics’ arguments against ESG while potentially subjecting offending companies to scorn from regulators and market participants. Those factors and others place a premium on avoiding greenwashing, a goal that’s accomplished by select ESG exchange traded funds, including the Invesco ESG Nasdaq 100 ETF (QQMG ).
QQMG follows the Nasdaq-100 ESG Index. That benchmark lays out clear ESG standards and is “compliant with the United Nations Global Compact principles,” according to Invesco. That methodology is pertinent because some market participants are finding novel ways to exploit greenwashing.
Sharks Circling ESG Greenwashing Offenders
Companies that fit the bill as greenwashers can draw the ire of regulators and disdain from investors. Both scenarios highlight the allure of a committed ESG strategy such as QQMG. The Invesco ETF is relevant for another reason. Some hedge funds see opportunity with environmental, social, and governance offenders. They’re testing that thesis by shorting stocks they believe could come under ESG scrutiny.
“Companies making environmental, social and governance claims are bumping up against an increasingly skeptical wall of investors looking for more than just lofty ESG talk. That’s as ESG and sustainability statements full of hard-to-quantify language become ubiquitous across the corporate landscape,” reported Bloomberg.
The Bloomberg article notes of the stocks luring greenwashing short bets by hedge funds are shares of smaller firms tied to untested areas of the sustainable investing arena, including battery recycling.
“But here and now, investors are increasingly trying to figure out which companies — and in some cases whole sectors — will falter once the effect of those subsidies fades. Argonaut Capital Partners is shorting green hydrogen stocks and some wind turbine producers, while Geneva-based Anaconda Invest is short solar stocks in the US,” according to Bloomberg.
Broadly speaking, solar is a credible industry. History has shown there is risk in shorting some of the more legitimate names in the group. Fortunately, QQMG is a broad, large-cap ETF that isn’t focused on a single climate-related issue. Is comprises familiar, high-quality companies, shares of which, in some cases. can be dangerous to short.
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