Vestas/hedge funds: only ESG sceptics have tailwinds short term

Two years ago, shorting environmentally sustainable companies appeared contrarian and churlish. These days it looks sensible. Hedge funds have targeted green energy companies such as wind turbine makers Nordex of Germany and Vestas. The Danish group contributed to bearishness by warning in preliminary full-year results on Wednesday that supply-chain woes would continue through 2022.

Rising input costs meant the group undershot its operating profit margin target of 4 per cent by 100 basis points. Though Vestas promised worse to come, the shares still bounced as short sellers cut their exposure. They have profited from a 35 per cent share price decline since late October back when their positions were bigger.

At least Vestas remains in the black. Smaller German rival Nordex has not made much money at all in the past eight quarters through September. That poor record has attracted even more short selling. They have used more than a tenth of the free float, according to data from Bloomberg. That is a multiple of the percentages for regional rivals Vestas and Siemens Gamesa. All three are easily twice as pricey against earnings than three years ago.

Short-term momentum is on the side of the bears judging from the performance of renewable energy benchmarks. A FTSE global renewable energy index has lost 16 per cent in the past year. European alternative energy funds are having a tricky time too. They rose just 4.8 per cent on average in 2021, according to Morningstar. Compare that to a 26 per cent return for Europe’s Stoxx 600.

All equipment makers are at the mercy of wind farmers such as Orsted, themselves vulnerable to weak wind speeds. Gargantuan oil companies such as BP are establishing their own projects but they are tough customers. Oil services providers from Schlumberger to Wood Group know full well how cheese-paring they can be on supplier prices.

Good luck to the hedgies. Unlike wind farmers, they have a short-term tailwind. In the medium to long term, carbon transition will remain an inexorable force. High valuations do not offer a strong enough sell catalyst for patient capital to act on.

The Lex team is interested in hearing more from readers. Please tell us what you think of short selling of wind turbine makers in the comments section below.