We study how socially responsible investing has impacted short selling. Among firms with high levels of expected short interest, those with higher social responsibility ratings have less shorting. This persists despite these firms having more lendable shares and lower lending fees. We show that social responsibility ratings create costs for short sellers through two channels: 1) some long-side investors are reluctant to sell socially responsible stocks, even if valuations warrant it, and 2) short squeeze risk—socially responsible stocks may experience price jumps when attention to ESG issues spikes. Our findings show socially responsible investing can deter short selling.
