To Net or Not to Net, That Is the Question: A Regulatory Review for Calculating the ESG Impact of Hedge Fund Portfolios
Sustainable finance regulation has largely overlooked alternatives, particularly hedge funds, given the greater complexity of strategies and asset classes. However, regulators are now expanding their scope to recognize the role that hedge funds can play in sustainable finance. The role of short selling in sustainable finance, especially in a net zero context, has been increasingly discussed and debated among regulators, market participants, investor initiatives, investor trade organizations, and ESG data providers. There is a concern that hedge funds may, intentionally or unintentionally, employ short selling to misrepresent their real-world impact, which is distinct from exposure to financial risk.