ESG darlings are becoming short selling targets.
While many investors continue to buy into the ESG boom, some hedge funds are adopting a different position—a short one. Newly public Oatly is in the crosshairs of activist short seller Spruce Point Capital Management. Spruce Point’s report launches a two-pronged attack accusing the oat milk company of accounting missteps and misleading the public about its green credentials. While sustainability is central to Oatly’s branding and stated mission, the report alleges persistent EPA violations and questions the company’s reporting regarding water use, among other things. Oatly denied these claims in a statement to CNBC. The battle shows that hedge funds are on alert for what they perceive could be greenwashing in order to build a campaign around that accusation.
Meanwhile, Mexican payroll lender and ESG favorite Credito Real is also under a bear attack. The Wall Street Journal reports that Millennium Management LLC and Bybrook Capital LLP questioned the company’s accounting and built a short position in anticipation of a bond price drop. While some continue to back the company—including the U.S. International Development Finance Corporation—credit rating firms have cut the company’s score, fogging up the company’s ESG sheen.
The short bets are a reminder that an ESG image can attract detractors in addition to investors’ capital.
We will be taking a summer break and will resume coverage at the end of August.
Have a great weekend,
Grace and Mike