Hedge funds are taking significant short positions against clean energy and green technology, a trend that could be more detrimental to the green transition than political opposition to “woke” capitalism, according to a report by Bloomberg.
Despite large green stimulus initiatives in the US, Europe, and China, a growing number of hedge funds are betting against sectors like batteries, solar power, electric vehicles (EVs), and hydrogen. At the same time, they are placing long bets on fossil fuels such as oil, gas, and coal, according to a Bloomberg analysis of hedge fund positions disclosed to Hazeltree, a data provider for the alternative investment industry.
The analysis offers a rare glimpse into the private world of hedge funds, showing that many in the $5tn industry are losing faith in the profitability of green investments, despite scientific and policy consensus that these are crucial to mitigating the worst effects of climate change.
Hedge fund managers say the reason is clear: clean energy and green tech stocks have underperformed. Deep-pocketed investors are coming to the conclusion that climate-related investments won’t deliver the quick, high returns they had anticipated.
While only a small fraction of the more than 500 hedge funds invest in energy, their positions reveal widespread caution around green stocks and confidence in fossil fuels. According to Hazeltree data, 77% of green sector stocks are being shorted by hedge funds, compared to just 33% in early 2021 when enthusiasm for the green transition was at its peak.
This shift has coincided with a broader downturn in the green economy. Since its peak in 2021, the S&P Global Clean Energy Index has plummeted nearly 60%, while the S&P 500 Index and the S&P Global Oil Index have soared by over 50%. Even Impax Asset Management, a prominent $50bn investor in clean energy, has seen its value more than halved.
The struggle for green investments is driven by a combination of economic, political, and geopolitical factors. Rising interest rates have made capital-intensive projects like offshore wind farms more expensive, and there’s a challenging political landscape, particularly in the US, where “woke” capitalism has become a contentious issue. Hedge fund managers must also contend with tariffs and trade wars, particularly with China, which dominates the supply chain for green technologies like solar panels and EV batteries.
If Donald Trump wins the upcoming US election, ESG investors could face even tougher times ahead. Trump has promised to cancel unspent climate funds and prioritise cheap gasoline, making climate investments even riskier.
