ESG craze is a 'mass investing delusion': Carson Block
The short-selling investor best known in Canada for exposing one of the country’s largest corporate fraud cases has now turned his attention to what he calls the “delusion” in environmental, social, and governance (ESG) investing.
Carson Block, founder and chief executive officer of Muddy Waters Capital LLC, told BNN Bloomberg that many ESG investment opportunities raise similar red flags to those he has seen in Chinese companies.
He said he’s wary of projections that don’t hold up under scrutiny, despite excitement around the perceived conceptual benefits of buying into ethical investing or China’s growth plan.
“I've called this ESG craze the second great mass investing delusion that I've seen in my career on the short side,” Block said in a television interview on Thursday.
In 2011, Block’s research into Sino-Forest Corp. triggered a securities regulator investigation after he accused the timber company of exaggerating assets and fabricating sales transactions. The Ontario Securities Commission later found that Sino-Forest, which ran much of its business in China, and had defrauded investors.
Block said he still sees risk in Chinese investments because projected benefits are based on a government policy-driven “growth narrative” that mask other issues with individual companies’ financials. He advised investors looking at long-term options in China “go in with eyes open (to) that risk.”
“There’s so much you can’t foresee and can’t control,” he said.
When it comes to ESG investing, Block said companies similarly present growth opportunities based on projections that aren’t made in good faith, and he perceives that analysts are not thinking critically when it comes to green technology.
As an example, Block referenced his recent research on solar panel company SunRun, that bases its projection on energy prices anticipated in the future – leading to what he called “false assumptions” about its investment value.
“If you use what we think are much more realistic, yet still company-favorable assumptions, you end up with a value of this company that's far, far lower than where it is,” he said.