Growing demand for sustainable investment in hedge fund industry

islamabad

News desk

Writing for Financial Times, Hedge Fund Correspondent Laurence Fletcher reports on the increasing popularity of sustainable investing among hedge funds. Hedge funds are increasingly viewing sustainable investing not just as a "nice-to-have", but as a "need-to-have" strategy that can both benefit their returns and help to future-proof their businesses.

The Covid-19 pandemic has played a significant role in driving this trend, as it has highlighted the risks of investing in companies with poor environmental, social, and governance (ESG) practices. Many hedge funds have also come under pressure from investors and regulators to take ESG considerations more seriously. For example, the European Union's Sustainable Finance Disclosure Regulation (SFDR), which came into force in March 2021, requires hedge funds to disclose how they integrate

ESG risks into their investment decisions.

To meet these demands, hedge funds are increasingly incorporating ESG considerations into their investment processes. This can involve engaging with companies to improve their ESG practices, as well as avoiding companies with poor ESG records. Some hedge funds are also developing proprietary ESG ratings and analytical tools to help them make more informed investment decisions.

However, sustainable investing can still be a controversial topic in the hedge fund industry. Some managers believe that ESG considerations can be subjective and difficult to quantify, and that they may not always align with their fiduciary duty to maximize returns for their investors. There is also concern that ESG investing could lead to a lack of diversification in portfolios, as many sustainable investment strategies tend to focus on a narrow subset of companies.

Despite these concerns, the article argues that the trend towards sustainable investing is likely to