A contradiction of terms: is stock-lending compliant with the ethos of an ESG fund?

The market share of ESG funds is rising rapidly and by some estimates is set to become a third of the total market as measured by assets under management. Many questions around ESG funds have yet to be resolved. There is active debate about the issues between, amongst others, asset managers, investors, regulators, lawmakers, scientists and pressure groups. However, some questions can be answered immediately. An ESG fund which shorts a stock which it would deem to be environmentally sound, or, more likely, lends it to another fund to short is acting against the principles of the ESG ethos which attracted its investors in the first place. This is because there is a tension between portfolio returns and environmental concerns. There is a risk of accusation of mis-selling resulting in litigation and censure by the regulator unless the fund’s modus operandi and their rationale are explicit.