ESG shorting strategy not what it seems

Plus, Ford's battery plant delay may be easier to explain than you think.

In today’s edition:

— The shorts have latched on to troubled ESG stocks. Is there anything left to sell?

— Can heat pumps save the planet? France thinks so, and now the U.S. does, too

— Mystery surrounds Ford’s decision to delay an EV battery plant. Rapidly falling prices may be one reason

— A group of Portuguese youths are suing European governments over climate change, as a victory in a Montana courtroom recently spreads young activist lawsuits to Europe

— Deutsche Bank unit DWS pays $25 million to settle SEC greenwashing case

— Half of the world’s population lives without enough water for part of the year, a UN report on water scarcity claims

Momentum is growing to protect and restore America’s redwood forests. Yale Environment 360 reports research shows that old-growth redwoods store more above-ground carbon than any forest on Earth, up 2,600 tons per hectare (2.47 acres). That’s three to five times as much as even the oldest secondary forests. Above, redwood trees in Grant Grove, Kings Canyon National Park, Calif. Photo: Frank Kehren/flickr.

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Back in the heady days of ESG investing in 2020, it was fashionable for professional investors to remind the trend-chasing, retail crowd that environmental, social and governance strategies were more of a discipline than an asset class. Three years and a roaring bear market later, the same could be said to short sellers.

Despite more than two years of falling prices for shares in clean energy, battery power, EVs, and carbon capture and storage (CCS), some short sellers are still riding the ‘ESG sector’ hard, at least according to this interesting piece on Bloomberg News yesterday.

It would make sense that smart short sellers would target some companies playing up the hype of green investing, even over-hyping their own technologies. We saw that in late 1990 with Nikola Motor NKLA 0.00%↑, for example. But much of the rest of the woes of the clean energy crowd came from the rotation back to oil and gas shares amid Russia’s invasion of Ukraine, and the global energy crisis that followed.

With ETFs in sectors such as clean energy ICLN 0.00%↑, carbon trading KRBN 0.00%↑, or solar energy TAN 0.00%↑ all down more than two years running, it’s hard to find any of the so-called “bloat” from ESG investors that the hedge funds appear to be targeting, even in the stocks mentioned in the article EVA 0.00%↑, LICY 0.00%↑, ENPH 0.00%↑, and GCPEF.

More likely these investors have latched on to falling shares and are riding the trend until the rotation shifts again, which is as good a strategy as any. But one that won’t last much longer, if you believe this morning’s report from the International Energy Agency, which forecasts a peak in oil and gas usage this decade as renewables take over.

Don’t forget to contact me directly if you have suggestions or ideas at dcallaway@callawayclimateinsights.com.

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Above, a residential heat pump. Photo: Danfoss, a Danish energy engineering company.

We want to pump you up! Heat pumps, that is