Hedge funds’ Investors are More ESG-Focused

July 24, 2019 | Hedge Funds
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A survey by BarclayHedge finds more than half of hedge fund assets next year will be invested keeping an eye on ESG factors

ESG hedge funds aren’t the oxymorons you thought them to be.

While the idea of generating alpha from socially responsible companies seems like a contradiction, the strategy finds itself in high demand.

According to a survey from Barclayhedge, more than 50% of hedge funds will tie their masts to environmental, social, and governance (ESG) criteria in 2019. The figure will jump from 42% last year to 58% by the end of 2019, the survey suggests.

ESG Hedge Funds – A Popular Strategy

Although ESG factors seem new to most institutional investors, the practice of using them to screen investments is more popular than you think. The survey reveals that managers who use ESG factors in decision-making have done so for an average 57 months. Here are a breakdown of different ESG standards that have gained attention

Environmental

On the environmental side, many hedge funds are eyeing “giant hazards” from climate change, wild fires, hurricanes and rising sea levels. The recent wildfires that ensnared Pacific Gas & Electric (PCG) have certainly increased awareness of environmental standards.

Social

Are companies treating employees fairly? Do they allow employees to work from home? Does the company offer equal pay for women? Does the company have diverse teams in their ranks?

Governance

Are earnings reports unreliable? The survey indicates that 61% of respondents believe that governmence is the most important standard when thinking about short selling. As the report indicates, this response shouldn’t surprise anyone.

After all, a correlation exists between governance and company performance. Any constant restating of earnings is an automatic red flag to most investors and draws questions about corporate leadership.

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