Four in 10 hedge fund managers now consider environmental, social and governance (ESG) ratings in allocation decisions, and the influence of these factors is growing, according to new research.
For managers that do consider these aspects when selecting equity securities, 52% of the assets they choose are now based on ESG ratings, says the survey by BarclayHedge, a division of technology firm Backstop Solutions.
The study also shows that while 42% of assets were allocated in 2018 based on ESG factors, this proportion jumps to a projected 58% next near. Several survey respondents indicated that ESG ratings played a part in 100% of their allocations.
Sol Waksman, president of BarclayHedge, highlighted the trends driving this behaviour, which include an increased interest among managers in social investing and rising recognition of the link between governance and performance.
He added: “The growing awareness of how human activity causes climate change has led investors to place greater importance on trying to reduce the impact of the most egregious activities.”
Of the survey respondents considering the environment, social impact and governance, a clear majority (more than 61%) use ESG ratings to screen candidates for long and short positions. Governance emerged as the most important element to these investors.
On average, investors who said they consider these three elements in their allocations, have actually being doing so for five years, the survey shows.