Institutional asset manager Unigestion has reported ‘encouraging’ results from a survey of hedge fund and private asset managers it invests in on their approaches to ESG.
Whilst the survey revealed that 60 per cent of hedge fund managers were still reluctant to introduce ESG criteria into their investment approach, this is a big improvement since the survey was last conducted in 2011, when 75 per cent of managers were reluctant. The percentage of managers that do incorporate ESG criteria has increased significantly from 25 per cent to 40 per cent and the proportion of managers Unigestion classifies as ‘leaders’ in this area has quadrupled.
Private asset managers surveyed for the first time this year are more advanced in incorporating ESG criteria than their hedge fund counterparts, with only 27 per cent indicating they would be reluctant to adopt ESG criteria. Nearly a fifth (18 per cent) of managers in this group are considered ‘leaders’.
Eric Cockshutt, Responsible Investment Coordinator at Unigestion, says: “It is increasingly widely recognised that incorporating ESG criteria in investment processes can have a positive impact on a portfolio’s risk-return profile, both through generating opportunities and reducing risk. Although there has been clear progress since our last survey three years ago, the adoption of ESG criteria is still at an early stage in the hedge fund universe. Private assets managers are much more advanced, as ESG policies are increasingly being considered as a driver of value creation amongst private equity investors.”
ESG adoption also varied according to hedge fund strategy. A quarter (25 per cent) of equity-related strategy managers (long-short equity, equity market-neutral) were deemed ‘leaders’ compared to only 5 per cent of tactical trading strategy managers (global macro, CTA, commodities).
Amongst private asset managers, the survey showed buyout managers place greater importance on ESG than venture and growth or special opportunity managers, with only 11 per cent indicating reluctance to incorporate ESG criteria compared to 60 per cent and 63 per cent respectively.
In terms of location, European hedge fund and private asset managers are more likely to show an interest in ESG than US-based firms. Large private asset managers are also more likely to adopt ESG investment approaches than smaller firms.
Cockshutt adds: “We conduct these surveys as part of our due diligence process when deciding which fund managers to invest in and report the results back to our clients, many of whom are increasingly demanding that ESG be taken into account. We also help the managers we invest in to help improve their ESG practices. We expect further progress over the coming years as the importance of ESG becomes more widely recognised among private asset and hedge fund managers and as greater pressure is applied by investors for firms to adopt them.”