Growing and developing Sustainable Investment for Hedge Funds | Paragon Alpha

Growing and developing Sustainable Investment for Hedge Funds

By Matea Gucec


The concept of "responsible investing" is founded on the two premises 1. Investments should represent the investor's values and 2. That long-term risk factors, such as environmental deterioration and socially inappropriate business practices, are not yet accurately valued by the market.

Hedge Fund managers and their organizations are progressively choosing and maximizing the performance of their investments by using environmental, social, and governance (ESG) aspects.

For ethical investors looking for methods to fund initiatives that combat climate change or have a good impact, environmental finance is a crucial source of knowledge. Now, more businesses are coordinating their operations with the SDGs Sustainable development goals (SDG).

  •       • In determining which hedge funds to deploy to, 22% of investors emphasize ESG, according to a 2021 Barclays study, which is twice as high as the same figure in 2020.
  •        • According to Morningstar, U.S. sustainable fund flows reached historic highs of $51 billion in 2020. That is over ten times the sum of 2018 and more than double the amount for 2019.
  •        • ESG will become even more important to the financial sector during the next 36 months, say 61% of institutional investors,  according to a 2020 Preqin poll (while only 7% said ESG would become less integral).

ESG is now a must rather than a "nice-to-have." By relying on specialists and technology advancements that enable them to carry out a successful plan, hedge funds with the appropriate partners may make ESG their superpower. Because of this, picking a service provider is an essential first step in setting up an effective ESG program. Firms can provide high investment returns as well as concrete social benefits when they collaborate with a team that can meet the ESG demands of the fund and its investors.

The hedge fund sector has a chance to shape the discourse around ethical investing thanks to its $3 trillion in assets under management and links to some of the most powerful investors in the world. An excellent place to start is by investing more money in accordance with responsible investment practices. According to UN projections, $5–$7 trillion in investments would be needed annually to achieve the 17 Sustainable Development Goals (SDGs) by 2030. From "reaching gender equality" (goal 5) and "ending poverty in all its manifestations" (goal 1) to "ensuring sustainable consumption and production patterns" (goal 12) and "taking immediate action to combat climate change," among other things, are included in these goals (goal 13). More investment is still required, even though traditional wealth management companies are allocating more money to ethical ventures.


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