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ESG strategies get a second look by hedge funds on expectations of a ‘green’ resurgence

Hedge fund managers are increasingly focusing on ESG metrics in their investment strategies, Bloomberg reported, citing a Jan. 10 report by UBS’s wealth management division.

The trend includes a significant shift toward sustainable investment strategies, with a particular emphasis on thematic equities and green, social, and sustainable bonds. In a separate report published earlier, UBS said 59% of investors surveyed are more interested in ESG and sustainable investing as a result of Covid, with even higher numbers among women and younger people.

In addition to traditional investment avenues, hedge fund clients are exploring opportunities in compliance carbon markets, the Jan. 10 report says.

The ESG shift is occurring amid expectations of lower interest rates in 2024, which is anticipated to spur a recovery in green assets following a downturn last year. The UBS analysts predict that the Federal Reserve will likely implement rate cuts, leading to a “soft-ish landing” and bolstering business investments in sustainability.

However, the analysts emphasize the importance of selectivity in ESG investment decisions, indicating a cautious approach to integrating environmental and social considerations into hedge fund strategies.