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Hedge funds at “tipping point” of ESG integration

Climate SmallHedge funds are increasingly incorporating ESG criteria into their investment processes but scepticism remains over its impact on returns, according to a report.

A survey by BNP Paribas Corporate and Institutional Banking of 53 hedge funds found that 40% already implement ESG criteria, while nearly 60% say they will incorporate ESG within the next two years. 

The report highlighted that hedge funds are “reaching a tipping point” for ESG integration as they become "increasingly aware of their responsibilities to the environment and society".

Over half of hedge funds say there will be increased demand for ESG-integrated investments post-Covid, but many are still sceptical about whether it can improve risk-returns. Just 48% believe ESG can improve their risk-return profile.  

The main driver behind ESG implementation was client demand, according to 71% of respondents, while 67% said it was to meet investor requirements. 

Sandrine Ferdane, BNP Paribas global head of financial institutions coverage, said: “As we have seen across the investment landscape, hedge funds are evolving to integrate ESG into their decision making. It is clear that hedge funds are starting to measure and manage certain ESG considerations – especially within their operations.” 

The hedge funds that took part in the report manage over $500 billion (€428 billion) of assets between them. 

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