PRI Launches Hedge Fund ESG Due-Diligence Questionnaire

Stockholm (NordSIP / HedgeNordic) The UN Principles for Responsible Investment (PRI), the global body with the mandate to promote global responsible investment, has launched the “first industry-standard responsible DDQ (due-diligence questionnaire) to hedge funds” in the attempt to ascertain their sustainability credentials and clarify to investors how they approach ESG issues when allocating capital.

The DDQ was launched at an event in London on May 11 and was sponsored by Man Group, featuring speakers from Albourne Partners, HFSB, Varma Mutual Pension Insurance, Man GLG and AIMA.

Hedge funds have been accused of being slow to adopt formal PRI and ESG policies due to the diverse range of strategies pursued within the industry and lingering apprehension about the negative impact on returns.

“We know that investors are getting pressure from their managers to include ESG criteria when choosing portfolio options, and that many leading pension funds do not invest in hedge funds because of their lack of compliance with ESG criteria,” said Fiona Reynolds, PRI managing director. “The questionnaire will be a valuable tool for helping the alternative investment market continue to move forward on responsible investment.”

The questionnaire initiative was launched in cooperation with the Alternative Investment Management Association (AIMA) and the Hedge Fund Standards Board (HFSB). It is estimated by the UNPRI that only 110 asset owners and 150 investment managers with hedge fund exposure are signed up to the six core principles of the PRI, out of 1,700 signatories with $62 trillion in AUM.

Man Group head of compliance and regulatory Kate Squire acknowledged the alternatives industry is still “at the beginning of its ESG journey.” However, “It’s just good business sense. Investors are no longer willing to accept an ethical black box approach,” she said at the launch of event of the questionnaire in London Thursday, as Tabby Kinder of Financial News reports.

“We’re trying to provide our managers with tools to more easily implement ESG practices. There is an education issue. The level of awareness among managers needs work,” added her colleague Carol Ward, CEO at Man GLG, Man’s stock-picking branch. “You need to have buy-in from senior management of the firm” in order for managers to adopt PRI ESG principles into the day-to-day approach of investing.

Jarkko Matilainen, head of hedge funds at Finnish insurance company Varma suggested that while he is not prepared to blacklist funds that refuse to improve ESG practices, he would like to see progress as they are “part of the consideration” in making investment decisions.

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