ESG factors

How Important Is ESG To Alternatives?

How important do you believe environmental, social and governance (ESG) factors – including diversity in the workplace – are to investors?

Q1 hedge fund letters, conference, scoops etc

ESG factors

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Posed by an audience member, this was the final question asked of a panel of fund managers at Preqin’s recent breakfast seminar in New York, after discussing trends from 2018, investors’ views on where we are in the current economic cycle and the challenges they face for 2019. It is not altogether surprising that this was the first and only time the topic of ESG was broached by the panel. While it is certainly the case that ESG considerations have become a higher priority to many industry participants over the past several years, it is evidently not yet a pressing topic of discussion. This is likely due to the breadth, idiosyncrasy and constantly evolving nature of what ‘ESG’ means to an individual or institution.

The members of the panel agreed that ESG factors were greatly important to investors, but to varying degrees depending on location – ESG appears more widely considered among investors in Europe than those in the US. What does all this mean? In our opinion, ESG considerations are still very much in their adolescence.

All members of the alternative assets industry know that ESG stands for environmental, social and governance – but what exactly those policies should include is a point of contention. The industry is lacking data to back up how important it is for investors to follow an ESG policy, or the impact ESG can have on returns. Indeed, among those investors interviewed by Preqin that do not yet have an ESG policy in place, 80% intend to implement one in the next five years. Similarly, workplace diversity is primed to grow in prominence, though policies on this subject are still very much in their infancy: 50% investors and just 17% of fund managers surveyed currently have a diversity policy in place.

Over the next few months, Preqin will provide considerations, challenges and answers to the question at the forefront of fund managers’ and investors’ minds: how will ESG impact our decisions? We will begin tracking ESG policies and industry affiliations, along with other data points, to provide some in-depth information for the industry and help contextualize the key issues surrounding ESG. In the meantime, take a look back at Preqin’s Future of Alternatives report to learn more about investor and fund manager expectations for ESG and diversity in alternatives over the next five years, and download our recent factsheet: Will Hedge Funds Ever Truly Embrace ESG Principles?

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Article by Justin Hall, Preqin

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