London, 28 October 2020 – A BNP Paribas Corporate and Institutional Banking (CIB) survey of 53 hedge funds with a combined AUM of over half a trillion USD has found that 40% include environmental, social and governance (ESG) considerations in their investment process. The survey highlights that hedge funds are reaching a tipping point of incorporating ESG into their decision making, finding that the majority of funds will integrate ESG no later than 2022. The key findings include:
- Tipping point & drivers: 40% of hedge funds surveyed integrate ESG into their investment process, driven by client demand (71%) and investor requirements (67%). Consequently, a variety of ESG investment styles have been added to traditional hedge fund strategies. ESG integration is reaching a tipping point; by mid-2022, 57% of surveyed funds will be incorporating ESG, and likely to be earlier given market dynamics.
- Characteristics challenges: 60% of participants do not currently integrate ESG. Some remain sceptical that ESG-related products/data sets can improve risk-returns and question whether they can be successfully combined into existing hedge fund investment strategies.
- Barriers: Of the surveyed funds integrating ESG, only 48% are driven by the belief that it will improve their risk-return profile. 67% of them cite social factors as the most difficult to analyse and incorporate. There was also an ‘action gap’ between the familiarity of sustainable products and uptake.
- Corporate sustainability: Hedge funds are becoming increasingly aware of their responsibilities to the environment and society. Currently 55% of all respondents use ESG principles in the management of their companies driven by firm leadership, and 62% are measuring their operational carbon footprint.
- Mainstreaming in the future: Over 50% of respondents believe there will be increased demand for ESG-integrated investments post-COVID. Furthermore, 85% of funds integrating ESG expect more regulatory disclosure requirements in the next year, with the majority taking a greater role in ESG consultations.
Similar to the 2019 BNP Paribas asset managers and owners’ survey, social factors and data remain current challenges as 1 in 5 hedge funds do not integrate ESG due to lack of data.
Sandrine Ferdane, BNP Paribas Global Head of Financial Institutions Coverage (FIC) emphasised:
“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 research is based on a survey of 53 individual hedge fund management organisations along with in-depth interviews with prominent leaders from within the industry, conducted in spring/summer 2020. The global survey sample represents a broad cross-section of hedge funds, in terms of sizes, primary strategies, geographies, and client types. As a group, their combined AUM is over half a trillion dollars – approaching 20% of the total hedge fund industry’s AUM.
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About BNP Paribas Securities Services (securities.cib.bnpparibas)
BNP Paribas is a leading bank in Europe with an international reach. It has a presence in 71 countries, with approximately 199,000 employees, of which more than 151,000 in Europe. The Group has key positions in its three main activities: Domestic Markets and International Financial Services (whose retail-banking networks and financial services are covered by Retail Banking & Services) and Corporate & Institutional Banking, which serves two client franchises: corporate clients and institutional investors. The Group helps all its clients (individuals, community associations, entrepreneurs, SMEs, corporates and institutional clients) to realise their projects through solutions spanning financing, investment, savings and protection insurance. In Europe, the Group has four domestic markets (Belgium, France, Italy and Luxembourg) and BNP Paribas Personal Finance is the European leader in consumer lending. BNP Paribas is rolling out its integrated retail-banking model in Mediterranean countries, in Turkey, in Eastern Europe and a large network in the western part of the United States. In its Corporate & Institutional Banking and International Financial Services activities, BNP Paribas also enjoys top positions in Europe, a strong presence in the Americas as well as a solid and fast-growing business in Asia-Pacific.