Hedge fund investors shift focus to ESG outcomes, study finds

This article was originally published on this site

Laxman Pai, Opalesque Asia:

Alternative investors are increasingly focusing on ESG outcomes to tackle issues such as climate change and diversity, a latest report has found.

68% of alternative funds managers now have strong ESG practices in place, an increase of 18% compared to 2016, said the ninth annual ESG Report from LGT Capital Partners analyses the activities of 344 managers globally (including 267 private equity managers) and assesses the improvements made in ESG practices.

The number of hedge fund managers achieving top ESG ratings has risen to 25% in 2021, an increase of 8% compared to 2020. This reflects the improvements following engagement with underlying managers over the last year.

Moreover, LGT CP no longer has exposure to any hedge fund managers with ‘poor’ ESG ratings.

Over the last twelve months, LGT CP has also extended its analytical framework to consider how certain hedge fund trading strategies can positively or negatively affect the carbon footprint of a portfolio. The firm has started to bring its hedge fund portfolios in line with the emissions targets (limiting climate change to well below 2°C) of the Paris Agreement.

Meanwhile, 34% of private equity managers specifically address climate change within their ESG policies, it said. 32% of private equity managers are actively assessing climate change risk within their portfolios, an increase of 9% compared to 2020.

According to the survey, 28% of alternative managers are actively measuring the CO2 emissions of their portfolio companies, reflecting the depth of their commitment to actively monitoring climate change risk.

50% of all private equity managers have a formal diversity & inclusion policy in place, while 48% consider these issues in investment decision-making. The latter is an improvement of 6 % compared to 2020 figures.

Commenting on the ESG Report 2021 findings, Tycho Sneyers, managing partner at LGT CP and board member at the PRI, said: “Our analysis shows a clear trend towards more outcome-oriented approaches in the way managers implement ESG across different asset classes.”

Tycho added: “This reflects the significant ESG progress we have seen over the last five years. Issues, such as climate change, diversity, and inclusion, are now very clear priorities for investors, and managers will need to demonstrate how they are positively contributing to address these challenges.”