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Hedge Funds’ Disputed ESG Strategy Gets a Thumbs Down From MSCI

  • MSCI finds no proof that short-selling raises cost of capital
  • Hedge funds have criticized lack of clear ESG shorting rules
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The hedge-fund industry’s claim that short-selling is an effective way to do environmental, social and governance investing is questionable on several levels, according to MSCI Inc. 

There’s no proof that shorting a company with poor ESG metrics will raise its cost of capital, according to Rumi Mahmood, vice president of ESG and climate fund research at MSCI. What’s more, shorting is counterintuitive as a tool for aligning investor interests with good corporate conduct and may lack the kind of transparency that’s generally sought after in ESG investing, he said in an interview.