What does the newest mean? Index Industry Association (IIA) Global Membership Survey. Find out about current trends in indices and benchmarks?
One of the important thing data points is that the rapid expansion of environmental, social and governance (ESG) indices continues to realize momentum and diversify across asset classes.
The 2022 survey found that the variety of ESG indices increased by 55%, with fixed income-focused ESG indices and benchmarks leading this growth.
The IIA has been surveying its members for six years to higher understand how the indices and benchmarks landscape is evolving. Our annual global benchmark surveys Collect member data across the indices managed in identified asset classes and regions – Global, Americas, Europe and Asia. IIA members now manage over three million indices, with equity indices accounting for 76% of the worldwide total. With only around 11,000 global Exchange Traded Products (ETPs), benchmarking stays the first use case for indices today.
The latest version of the IIA Global Asset Managers Report revealed increased demand for ESG bond indices and index providers have responded. The variety of ESG bond indices increased by 95.8% and exceeded the variety of ESG equity indices for the primary time, although the latter grew by 24.2%. There at the moment are greater than 50,000 ESG benchmarks worldwide.
Growth of worldwide ESG indices
Among the assorted index categories, global ESG bonds grew the fastest, up 122.5%. The second largest percentage increase was in ESG in European fixed income at 92.5%. This increase aligns with findings from our previous report: asset managers said fixed income is now the fastest-growing ESG asset class. In fact, 76% of asset managers have implemented ESG criteria in fixed income this 12 months, up from 42% in last 12 months’s survey. This has been an ongoing trend lately. As investors gain access to recent and higher data, the definition of ESG in fixed income continues to grow.
The growth rate of bond indices exceeded that of their stock indices for the third consecutive 12 months, increasing by 4.5% in comparison with 4.3%. Within the non-ESG bond category, municipal bond indices increased by 10.9%, while the distribution across other categories remained stable.
Growth of worldwide bond and stock indices
Why does this all matter to investors? The research and development that goes into benchmarks and indices ultimately finds its way back to the tip investor. This 12 months’s results illustrate a sequence response: With higher ESG data, index providers are creating higher benchmarks to trace the market. This gives asset managers the tools to develop more investable products. In return, investors have more confidence that their investments will meet their expectations.
Our results also revealed a significant misconception about stock indices. Contrary to popular belief, America doesn’t dominate in the whole variety of stock indices. In fact, the region has the bottom share of stock indices of the three regions examined. However, our survey shows that America is leading the way in which in creating recent pension indices. The market has the biggest share of fixed income indexes, with more securitized benchmarks and high yield and municipal bond indices than some other region.
Despite this development, the distribution of indices across regions has remained stable and consistent lately.
We will likely be watching over the approaching 12 months to see whether these trends gain momentum or wane.
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