The overwhelming majority of asset owners consider environmental, social and governance (ESG) concerns important when selecting private equity, property or infrastructure managers – with such concerns the least important within the hedge fund sector, according to a new survey.
The global survey, covering nearly 100 respondents including pension schemes and sovereign wealth funds, found that three-quarters considered ESG when making investment decisions, and that 57% perceived ESG factors as improving risk-adjusted returns.
Conducted by Mercer and LGT Capital Partners, the survey also found that greenhouse gas emissions were viewed as the most important environmental issue, closely followed by water scarcity.
The survey noted that initiatives, such as the Montreal Carbon Pledge, were seeing institutions demonstrate a greater interest in managing climate-related risks.
“A further factor that contributes to the wide acceptance of carbon intensity and greenhouse gas emissions,” it added, “is that they are quantifiable and clearly defined, making tracking and implementing policies easier than for other ESG criteria.”
Private equity investors appeared most convinced of the importance of ESG, as only 12% of respondents said the matter was not considered when appointing a manager within the asset class.
The approach to ESG by infrastructure and real estate managers was also important to investors, with 22% and 27% saying it was a significant factor when appointing managers – in stark contrast to the view of those appointing hedge funds, where only 7% said it was a matter of significant concern.
Among hedge fund investors, more than one-third said they did not consider ESG at all, twice the number that said it was immaterial when investing in property.
The survey is the second in a number of months to show the private equity market increasingly viewing ESG as a core concern.
Tycho Sneyers, chairman of the ESG committee at LGT Capital Partners, argued that the survey results showed how ESG had moved “beyond ethical concerns” and found its place as a risk and investment-management topic.