We are all aware that there is a great deal of noise surrounding the rise of ESG, so it always interesting to see how much substance there is behind this.
Clearly in the corporate world, we now seeing firms being named and shamed, with Siemens only yesterday being taken to task by BlackRock for its environmental record.
While hedge funds have not exactly made names for themselves for being big on ESG (apart from TCI, who is pushing for portfolio businesses to cut emissions), an insightful joint KPMG/ AIMA/ CAIA report published yesterday (link) shows that funds are increasingly heading down this path.
The main driver are clearly the institutional investors, which is perhaps not surprising, as they up their demands for the adoption of ESG into investment processes, but there is also a belief that there is alpha generation through ESG factors.
I have picked out a few statistics from the survey, which was in two parts, the first hedge fund managers and the second institutional investors:
85% of hedge funds said institutional investors are behind their push into ESG.
15% of hedge fund managers have ESG factors embedded in their investment processes.
44% of institutions believed ESG focused funds can deliver alpha and have defensive value.
49% of institutions believed that the lack of decent data makes the process challenging.
In terms of the cycle of where we are in the ‘ESG implementation’ cycle, only 15% of funds said they were at the mature stage, 44% in progress, 31% are raising awareness and 10% have made no steps in this direction.
The takeaways are that we are at a very early stage. Clearly institutions will continue to push in this direction and funds in turn will continue to strengthen their ESG focus. With data lacking, we do need consistent data to ensure that everybody is singing from the same hymn sheet, although unstructured data aids mis-pricing, which can only be good for alpha generation.
While the results from ESG investing remains at a too early to judge state, there are opportunities for managers to grasp the ESG mantle. As the report writes, those that have, at this early stage, are emerging as ‘best in class’.