The integration of ESG factors into the investment process continues to accelerate
rapidly. Whilst traditional investor segments of the industry have made
strides in the adoption of ESG factors into their investment frameworks, the
study assess how hedge funds are responding to the shift across their diverse
spectrum of investment strategies.
By mid-2022 the majority of hedge funds will be integrating ESG approaches.
The survey – which
included 53 hedge funds with a combined AUM of over half a trillion USD –
found that 40% currently include
ESG considerations in their investment process, while 60% do not.
Interestingly, the survey found that the imbalance is not simply a matter of
hedge funds being unconvinced about the business case of integrating ESG for a
sustainable future, but that there are key barriers that have delayed integration.
For example, 67% of respondents cited social factors as the most difficult to
analyse and incorporate. There was also an ‘action gap’ between the
familiarity of sustainable products and uptake.
In
spite of this, a key finding of the report is that hedge funds are approaching
the tipping point of ESG integration. Whilst the majority of funds surveyed do
not currently integrate ESG, most of those who do only started integrating ESG
since 2018. On this trajectory, by mid-2022 the majority of hedge funds will be
integrating ESG approaches – likely sooner.
The report also examines the key
drivers behind current integration, such as client demand and a belief that
ESG positively impacts risk-returns. Future drivers will also continue to
shape the sector’s response to ESG, such as the COVID-19 recovery and an
evolving ESG regulatory landscape.
The
ESG hedge fund survey is a further expansion of BNP Paribas research into ESG
investing, and follows on from previous ESG asset management and owner surveys
conducted in 2017 and 2019. Similar to the 2019 BNP Paribas ESG
survey, this hedge fund study also found that social factors and data remain
current challenges.
To
build on the survey findings, the report presents a framework against which
hedge funds map their current approach to ESG across three pillars.
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