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How hedge funds are investing across environmental, social, and governance factors, and how ESG investment decisions (long & short) impact performance.

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Hedge Funds & ESG

No α in ESG?

June 18, 2021

Study after study shows that companies that focus on Environmental, Social and Governance criteria tend to outperform. Novus research bears that out, with top hedge funds holding a AAA rating on ESG metrics boasting a 39.00% return on invested capital compared to the 30.26% ROIC posted by BBB-rated funds.

But when you look at it in terms of alpha, it all evaporates. Security contribution is 58.10 basis points for AAA-rated funds, an order of magnitude less than the 687.69 bps for those rated BBB.

For those who wish to do well by doing good, perhaps the AA rating hits the spot. Its 33.50% ROIC pairs with a 244.44 bp security contribution.