In November, Dreyfus transformed its Dreyfus Government Securities Cash Management Fund into an impact investment fund. As of April 30, about 58% of the fund’s trading was conducted with broker dealers run or owned by women, minorities, LGBTQ or service-disabled veterans.
Similarly, Goldman Sachs Asset Management (GSAM) recently repositioned one of its government money market funds to include a focus on diversity and inclusion, and through March 31, about 70.9% of the fund’s purchases were conducted with women, minority or veteran-owned broker dealers.
“We integrate ESG considerations into our investment process because we believe it contributes to improved performance,” said Michael Kashani, GSAM Fixed Income’s Global Head of ESG Portfolio Management.
Even the market for collateralized loan obligations (CLOs) has seen a recent influx of ESG strategies. Quantitative hedge fund firms are expressing interest in ESG strategies and the number of ESG index products has proliferated, with everything from start-ups to the largest asset management firms getting in on the act.
There is an “inconsistent understanding of the opportunity and risk, but the tipping point has come, so there is more focus on active investment and positive search for ESG analysis,” says Frances Barney, Head of Global Risk Solutions for BNY Mellon Asset Servicing.
Even so, if ESG is to be a long-lasting consideration, it needs to address the problems of its early success, namely the variety and unreliability of its data and definitions.
Jason Mitchell , Co-Head of Responsible Investment at alterative investment manager Man Group in London, overseeing $104.2 billion, says his team has been using data from numerous providers and reworking it in order to produce the firm’s own ESG factors for its in-house algorithms.
He says there are lots of reasons to be skeptical. Given the relatively short track record for much of the information (less than a decade) and the fact that many data issues still persist, Mitchell cannot definitively say that the ESG factors are a source of alpha, but the firm has seen some positive signals. “It’s only pervasive for the time we have confidence in the data, which is about seven and a half years,” he said.