In a new white paper, Merrill Sepehrnia, Head of Total Return Sustainability at Pictet Asset Management, explains why hedge funds are well placed to uncover ESG issues and help drive the ESG agenda forward.
He argues that while “sustainable investment is usually associated with a long-term, buy and hold approach, hedge funds are arguably at least as well-placed as their long-only peers in using environmental, social and governance (ESG) factors to construct portfolios. Their ability to go long and short can be a considerable advantage. Not least when it comes to holding companies to account for poor governance.
“Indeed, many of the corporate scandals of the past few decades might not have come to light had it not been for hedge funds. It was a hedge fund that first spotted the problems at energy giant Enron, pursued suspected fraud at fintech darling Wirecard, and unearthed accountancy fraud at retailer Steinhoff.
“True, in all of these cases, the investment managers made money from their short positions. But they also actively lobbied company management and pushed problems into the public eye, leading to their eventual resolution – and to the tightening of laws and regulations.
“What has worked for corporate governance can also work for environmental and social matters.”