About four in 10 (41 per cent) hedge fund managers are considering environmental, social and governance factors in their allocation decisions, according to a new survey by BarclayHedge Ltd.
Among this group, 52 per cent of assets are currently allocated based on ESG ratings. Last year, that number was 42 per cent and it’s projected to jump to 58 per cent next year. As well, several survey respondents indicated that ESG ratings were a factor in 100 per cent of their allocations.
The survey also found managers using ESG have been doing so for an average of 57 months so far. This included managers with a wide range of experience levels, including some that have been using ESG for more than eight years and some that are just starting out.
In terms of how they’re implementing ESG factors, 62 per cent of respondents said they use them for long and short positions, while 38 per cent said they only use them for long positions. While no respondents said they use ESG factors solely for short positions, when they do so, the most frequently considered issue is governance (61 per cent), followed by environmental factors (28 per cent) and sustainability (11 per cent).
At 56 per cent, governance also factored in most heavily for long positions, followed by social (26 per cent) and environmental issues (18 per cent).
“The increasing role of ESG ratings among the survey participants isn’t surprising,” said Sol Waksman, president of BarclayHedge, in a press release. “Several factors are converging that are driving the trend. One is an increased interest among managers in social impact investing. There’s also a growing recognition of the link between governance and performance. Finally, the growing awareness of how human activity causes climate change has led investors to place greater importance on trying to reduce the impacts of the most egregious activities.”