Hedge Funds: Resolving Myths about ESG Integration

Abstract

Despite the widespread acceptance of the ESG concept, its adoption by the hedge fund industry has been relatively slower than in other asset classes. A series of misconceptions and myths seems to hinder the conviction level in the hedge fund universe. This article examines the top misconceptions about ESG integration and hopefully clears a path for increased adoption in the hedge fund investment management process. It argues that ESG integration can be adopted in all hedge fund strategies and provides meaningful benefits to both hedge funds and their clients. By incorporating ESG considerations early in the initial underwriting process, a hedge fund manager can potentially improve the future risk-adjusted return for the fund without necessarily creating a social tilt in the portfolio. Importantly, senior leadership should champion its firm-wide adoption by being intentionally strategic about the time commitment and resource allocation.