Effectiveness of Ethical Investment Strategies for Portfolio Managers
In the world of finance, pension funds are increasingly embracing Environmental, Social, and Governance (ESG) strategies, driven by evidence of competitive financial returns and enhanced governance focus. This shift is not only beneficial for the environment and society, but it also aligns with long-term risk management and social impact objectives.
Recent data suggests that ESG strategies can yield returns comparable to or better than non-ESG strategies over several years. For instance, an investment of $100 in ESG funds in 2018 would have grown to about $136 by 2024, outperforming a $131 value in traditional funds over the same period [2].
Institutional investors, including pension funds, are integrating ESG considerations into risk management and portfolio construction. Alexforbes Investments, for example, has shown a strong commitment to ESG, linking it to long-term investment outcomes, transparency, and measurable social impacts [1]. They emphasize governance as the most material ESG risk, a factor that is increasingly important for institutional governance assessment.
However, full ESG integration into core business strategies by companies remains limited, with only about 21% of CFOs reporting progress toward full integration in mid-2025 [3]. This is significant for institutional investors as it impacts the materiality and effectiveness of ESG factors in portfolio risk and return profiles.
Despite these challenges, there is a growing recognition of ESG factors as critical to long-term risk management and social impact. Institutional investors are moving towards requiring ESG investment as part of their core portfolio, leading to increased demand for ESG products from fund managers [4].
This trend is particularly evident in Denmark, where pension funds are leading the charge to increase ESG investment. The WWF in Denmark collaborated with 17 Danish pension funds to monitor their ESG investment approach, and Danish pension fund advisor PKA banned a total of 40 oil companies from their investment list [5].
Moreover, Danish pension funds use international documentation like the Paris Agreement as a basis for their ESG investment plans [6]. For instance, the Danish pension fund SCA requested that Blackrock launch a European equity fund using the UN principles for their ESG approach, resulting in a USD$50m investment [5].
It's important to note that while ESG integration is evolving, it faces challenges in mainstreaming sustainability fully into business strategy and regulation. These are issues that institutional investors must navigate carefully [1][3][4][5].
The UN staff pension fund has been found to invest in companies that do not adhere to UN core principles [7], highlighting the need for rigorous due diligence in ESG investing.
In conclusion, the shift towards ESG investment by institutional investors like pension funds is a positive development. However, it's crucial to approach ESG integration thoughtfully, considering both the financial benefits and the challenges in mainstreaming sustainability.
[1] Alexforbes Investments' 2025 Stewardship Report [2] Morgan Stanley’s 2025 Sustainable Reality report [3] CFO Magazine, July/August 2025 [4] Globescan and SustainAbility, 2025 Investor Survey [5] Financial Times, 15th September 2025 [6] Danish Ministry of Climate, Energy, and Utilities [7] The Guardian, 1st October 2025
Please note: The views expressed in this article do not reflect the views of AlphaWeek or The Sortino Group. All rights for the publication are reserved by The Sortino Group. For information about reprints from AlphaWeek, click the provided link.
This article is a Hedge Funds Guest Article published by The Sortino Group, and Robert Mirsky serves as the Head of Asset Management at EisnerAmper. Robert Mirsky's business has seen an increased focus on ESG (Environmental, Social, and Governance) investment from pension funds, institutions, and fund managers.
For more information about ESG investing and its impact on the financial industry, stay tuned to AlphaWeek.
Institutional investors, such as pension funds, are increasingly focusing on Environmental, Social, and Governance (ESG) strategies in their finance and business, driven by the promise of competitive financial returns and enhanced governance focus. Furthermore, institutional investors like Alexforbes Investments are integrating ESG considerations into their risk management and portfolio construction, emphasizing the importance of ESG factors in long-term investment outcomes, transparency, and measurable social impacts.
