Is it time to stop worrying and learn to love the short sellers?

Short sellers tend to be reviled as the vultures of the investment world.

Topics
Richard Heap
January 24, 2020
Is it time to stop worrying and learn to love the short sellers?

Short sellers tend to be reviled as the vultures of the investment world.

Because these investors make their money when stocks fall, they are often seen as unscrupulous and wanting to see firms fail. And it’s true to say they have a financial interest when firms they’ve ‘shorted’ fail.

However, they could also become the renewables industry’s best friends.

Now don’t misunderstand us. We’re not here to argue that short sellers are all ethical paragons. But it is still worth unpicking that shady reputation.

Short selling is a relatively simple context. In short, it is where an investor – often a hedge fund – borrows a stock from a lender and then sells it on the open market with a commitment to buy it back at a certain date, and then return it to the lender.

This means that short sellers make money when the price of the stock falls, because they sold it for a higher price than they bought it back. This might look shady to some, but it is also a brake on market over-exuberance and helps investors balance their portfolios.

More short sellers are now turning their attention to the environmental promises that corporates are making – and that’s where this gets interesting for wind investors.

Reuters reported last month that more hedge funds are now looking to ‘short’ corporates that they believe are using environmental promises to over-inflate their share prices when, in reality, these promises amount to little more than ‘greenwash’. They believe there are corporates that talk a good game on the environment, including renewable energy, but are doing little.

These short sellers see this as an opportunity to profit because, in the near future, they believe that companies that are engaged in 'greenwashing' will take a hit to their share price if and when this behaviour is exposed.

It quoted Chad Slater of Morphic Asset Management, who said: “Greenwashing is absolutely rampant now… From the short side, it’s quite interesting.”

This is relevant for wind investors because it puts the environmental promises of corporates under more scrutiny. It will be in the interests of short sellers to find out and share information on corporates that aren’t doing what they say when it comes to the climate, including on the procurement of green power.

It will also become a priority for shareholders to ask tough questions about environmental issues to ensure they don’t lose out. This will pile pressure on management teams.

And, in our view, that can only increase the demand for wind and solar power, both on-site generation and procured via power purchase agreements.

If corporates are committed to being more environmentally friendly in their operations - including going 'net zero' - then that will include the energy they buy, and this additional focus can only encourage the laggards.

In fact, the only companies in the wind sector who might be worried are any listed manufacturers or utilities who aren’t meeting ‘green’ promises in their operations. We've warned about these risks in previous columns.

Short sellers may have a reputation as being from the dark side, but in this case they could be a vital watchdog to ensure companies are being as ethical as they could be. Yes, they might make sickening amounts of money in the process – but at least we can say that it’s happening for the right reasons.

NEWS IN BRIEF

PARTNERS BUYS 80% OF GERMANY'S VSB

Partners Group has agreed to buy an 80% stake in European renewables developer, owner and operator VSB Group, which has developed and built 1.1GW of wind and solar assets. Read more

TEMASEK AND EQT FORM 4GW INDIA VEHICLE

Singapore investor Temasek and European asset manager EQT have set up Indian renewables platform O2 Power, which is looking to build a 4GW wind and solar portfolio. Read more

UAE'S AL NOWAIS PLANS $500M GREEN FUND

United Arab Emirates businessman Hussain Al Nowais is planning to set up a $500m fund to invest in renewables projects, including wind farms, in the Middle East and Africa. Read more

INDIA'S RENEW RAISES $450M IN BOND ISSUE

Indian developer ReNew Power has raised $450m through a bond issue to refinance debts that mature this year. Read more

SPOWER SUSPENDS 200MW SENECA SCHEME

US utility sPower has suspended its plan to build the 200MW Seneca wind farm in Ohio after a refusal by the Ohio Power Siting Board. Read more

EUROWIND PLACES 60MW VESTAS ORDER

Eurowind Energy has picked Vestas to supply turbines for the 60MW Janikowo project in Poland's Kujawsko-Pomorskie region. Read more

OX2 COMPLETES 30MW IKEA SCHEME

Swedish developer OX2 has completed the 30MW Ponsivuori wind farm in Finland and handed it over to Ikea. Read more

Short sellers tend to be reviled as the vultures of the investment world.

Because these investors make their money when stocks fall, they are often seen as unscrupulous and wanting to see firms fail. And it’s true to say they have a financial interest when firms they’ve ‘shorted’ fail.

However, they could also become the renewables industry’s best friends.

Now don’t misunderstand us. We’re not here to argue that short sellers are all ethical paragons. But it is still worth unpicking that shady reputation.

Short selling is a relatively simple context. In short, it is where an investor – often a hedge fund – borrows a stock from a lender and then sells it on the open market with a commitment to buy it back at a certain date, and then return it to the lender.

This means that short sellers make money when the price of the stock falls, because they sold it for a higher price than they bought it back. This might look shady to some, but it is also a brake on market over-exuberance and helps investors balance their portfolios.

More short sellers are now turning their attention to the environmental promises that corporates are making – and that’s where this gets interesting for wind investors.

Reuters reported last month that more hedge funds are now looking to ‘short’ corporates that they believe are using environmental promises to over-inflate their share prices when, in reality, these promises amount to little more than ‘greenwash’. They believe there are corporates that talk a good game on the environment, including renewable energy, but are doing little.

These short sellers see this as an opportunity to profit because, in the near future, they believe that companies that are engaged in 'greenwashing' will take a hit to their share price if and when this behaviour is exposed.

It quoted Chad Slater of Morphic Asset Management, who said: “Greenwashing is absolutely rampant now… From the short side, it’s quite interesting.”

This is relevant for wind investors because it puts the environmental promises of corporates under more scrutiny. It will be in the interests of short sellers to find out and share information on corporates that aren’t doing what they say when it comes to the climate, including on the procurement of green power.

It will also become a priority for shareholders to ask tough questions about environmental issues to ensure they don’t lose out. This will pile pressure on management teams.

And, in our view, that can only increase the demand for wind and solar power, both on-site generation and procured via power purchase agreements.

If corporates are committed to being more environmentally friendly in their operations - including going 'net zero' - then that will include the energy they buy, and this additional focus can only encourage the laggards.

In fact, the only companies in the wind sector who might be worried are any listed manufacturers or utilities who aren’t meeting ‘green’ promises in their operations. We've warned about these risks in previous columns.

Short sellers may have a reputation as being from the dark side, but in this case they could be a vital watchdog to ensure companies are being as ethical as they could be. Yes, they might make sickening amounts of money in the process – but at least we can say that it’s happening for the right reasons.

NEWS IN BRIEF

PARTNERS BUYS 80% OF GERMANY'S VSB

Partners Group has agreed to buy an 80% stake in European renewables developer, owner and operator VSB Group, which has developed and built 1.1GW of wind and solar assets. Read more

TEMASEK AND EQT FORM 4GW INDIA VEHICLE

Singapore investor Temasek and European asset manager EQT have set up Indian renewables platform O2 Power, which is looking to build a 4GW wind and solar portfolio. Read more

UAE'S AL NOWAIS PLANS $500M GREEN FUND

United Arab Emirates businessman Hussain Al Nowais is planning to set up a $500m fund to invest in renewables projects, including wind farms, in the Middle East and Africa. Read more

INDIA'S RENEW RAISES $450M IN BOND ISSUE

Indian developer ReNew Power has raised $450m through a bond issue to refinance debts that mature this year. Read more

SPOWER SUSPENDS 200MW SENECA SCHEME

US utility sPower has suspended its plan to build the 200MW Seneca wind farm in Ohio after a refusal by the Ohio Power Siting Board. Read more

EUROWIND PLACES 60MW VESTAS ORDER

Eurowind Energy has picked Vestas to supply turbines for the 60MW Janikowo project in Poland's Kujawsko-Pomorskie region. Read more

OX2 COMPLETES 30MW IKEA SCHEME

Swedish developer OX2 has completed the 30MW Ponsivuori wind farm in Finland and handed it over to Ikea. Read more

Short sellers tend to be reviled as the vultures of the investment world.

Because these investors make their money when stocks fall, they are often seen as unscrupulous and wanting to see firms fail. And it’s true to say they have a financial interest when firms they’ve ‘shorted’ fail.

However, they could also become the renewables industry’s best friends.

Now don’t misunderstand us. We’re not here to argue that short sellers are all ethical paragons. But it is still worth unpicking that shady reputation.

Short selling is a relatively simple context. In short, it is where an investor – often a hedge fund – borrows a stock from a lender and then sells it on the open market with a commitment to buy it back at a certain date, and then return it to the lender.

This means that short sellers make money when the price of the stock falls, because they sold it for a higher price than they bought it back. This might look shady to some, but it is also a brake on market over-exuberance and helps investors balance their portfolios.

More short sellers are now turning their attention to the environmental promises that corporates are making – and that’s where this gets interesting for wind investors.

Reuters reported last month that more hedge funds are now looking to ‘short’ corporates that they believe are using environmental promises to over-inflate their share prices when, in reality, these promises amount to little more than ‘greenwash’. They believe there are corporates that talk a good game on the environment, including renewable energy, but are doing little.

These short sellers see this as an opportunity to profit because, in the near future, they believe that companies that are engaged in 'greenwashing' will take a hit to their share price if and when this behaviour is exposed.

It quoted Chad Slater of Morphic Asset Management, who said: “Greenwashing is absolutely rampant now… From the short side, it’s quite interesting.”

This is relevant for wind investors because it puts the environmental promises of corporates under more scrutiny. It will be in the interests of short sellers to find out and share information on corporates that aren’t doing what they say when it comes to the climate, including on the procurement of green power.

It will also become a priority for shareholders to ask tough questions about environmental issues to ensure they don’t lose out. This will pile pressure on management teams.

And, in our view, that can only increase the demand for wind and solar power, both on-site generation and procured via power purchase agreements.

If corporates are committed to being more environmentally friendly in their operations - including going 'net zero' - then that will include the energy they buy, and this additional focus can only encourage the laggards.

In fact, the only companies in the wind sector who might be worried are any listed manufacturers or utilities who aren’t meeting ‘green’ promises in their operations. We've warned about these risks in previous columns.

Short sellers may have a reputation as being from the dark side, but in this case they could be a vital watchdog to ensure companies are being as ethical as they could be. Yes, they might make sickening amounts of money in the process – but at least we can say that it’s happening for the right reasons.

NEWS IN BRIEF

PARTNERS BUYS 80% OF GERMANY'S VSB

Partners Group has agreed to buy an 80% stake in European renewables developer, owner and operator VSB Group, which has developed and built 1.1GW of wind and solar assets. Read more

TEMASEK AND EQT FORM 4GW INDIA VEHICLE

Singapore investor Temasek and European asset manager EQT have set up Indian renewables platform O2 Power, which is looking to build a 4GW wind and solar portfolio. Read more

UAE'S AL NOWAIS PLANS $500M GREEN FUND

United Arab Emirates businessman Hussain Al Nowais is planning to set up a $500m fund to invest in renewables projects, including wind farms, in the Middle East and Africa. Read more

INDIA'S RENEW RAISES $450M IN BOND ISSUE

Indian developer ReNew Power has raised $450m through a bond issue to refinance debts that mature this year. Read more

SPOWER SUSPENDS 200MW SENECA SCHEME

US utility sPower has suspended its plan to build the 200MW Seneca wind farm in Ohio after a refusal by the Ohio Power Siting Board. Read more

EUROWIND PLACES 60MW VESTAS ORDER

Eurowind Energy has picked Vestas to supply turbines for the 60MW Janikowo project in Poland's Kujawsko-Pomorskie region. Read more

OX2 COMPLETES 30MW IKEA SCHEME

Swedish developer OX2 has completed the 30MW Ponsivuori wind farm in Finland and handed it over to Ikea. Read more

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