ESG investing in hedge funds: analysis of the impact of ESG criteria on investment decisions

Aim. To analyze the impact of adherence to ESG practices on investment performance and financial performance in hedge funds.

Tasks. To study methods of ESG-criteria integration into hedge funds, their decision-making principles and influence of basic ESG-rating on the hedge funds performance; to analyze the dynamics of two selected hedge funds with different strategies on the basis of their assets and profitability levels; to formulate the recommendations for ESG-criteria use in the investment decision-making in hedge funds.

Methods. The author of the article used a mixed method of analysis, combining qualitative and quantitative data, to form the empirical base of the study. The method of content analysis and empirical methods were used to analyze qualitative data. In turn, quantitative data were processed by statistical and logical tools. In addition, the author used methods of comparison and analysis of data on the profitability of selected hedge funds.

Results. The funds BlackRock Sustainable Advantage World Equity Fund and BlackRock Systematic Global Long/Short Equity Fund, which have high and low ESG-rating respectively, were analyzed. The research showed that both funds are successful and perform well. However, the BlackRock Sustainable Advantage World Equity Fund has higher returns and performance. This can be attributed to the fact that this fund focuses on companies that perform well in sustainability and social responsibility. Moreover, the ESG fund has a high volume of assets and returns due to both sound investment policies and the development of government support for ESG companies, as well as external factors and the “low base effect.”

Conclusions. Despite the fact that ESG funds are not a categorical anti-crisis measure, comparative analysis of funds with different ESG ratings revealed that ESG funds may show more stable results due to their more diversified portfolio strategy and consideration of ESG factors. Having studied the trends and dynamics of these hedge funds over several years, the author has come to the conclusion that the use of ESG-principles can give an advantage to investment companies in the market with a high degree of volatility. Additionally, a number of limitations of the study are highlighted.

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