Sustainable investing could be very necessary to investors around the globe. That’s an important takeaway from this Index Industry Association (IIA)’S fifth annual survey of world independent index providers.
By measuring the variety of indices worldwide from different asset classes, regions and categories, the annual IIA benchmark survey serves as a useful temperature check for global investors and led us to a deeper evaluation of emerging investor priorities. IIA members proceed to administer over 3 million indices worldwide and with 9,000 to 10,00 exchange traded products (ETPs), it is evident that almost all indices are used for benchmarking purposes relatively than investment products. The unprecedented growth of environmental, social and governance (ESG) indices and the continued expansion of fixed income indices lately have created more tools for benchmarking and can provide asset managers with higher tools to develop higher investment products for investors.
The results of this 12 months’s survey show that the traffic light for ESG or sustainable investing remains to be green. The variety of indices measuring ESG criteria increased by 43%. This is a record year-on-year increase for all sectors included within the survey and comes on top of a 40.2% increase from 2019 to 2020. To put this into perspective, most categories change by a maximum of 5% year-on-year.
While not surprising, the newest survey results, combined with other IIA research, confirm a continued and accelerating trend we have now observed over the past few years. As global investors increasingly embrace sustainable investment strategies and regulators and policymakers sharpen their give attention to ESG-related issues, the demand for reliable ESG market metrics has increased significantly. And index providers have stepped in to satisfy this demand.
The breathtaking growth of the ESG index lately inspired us to introduce the IIAs First annual ESG survey of world asset managers Beginning of the 12 months. The first survey gathered the views of around 300 asset managers within the US and Europe on a spread of ESG-focused topics. It found that 85% of those managers view ESG as a high priority for his or her corporations. ESG prioritization drives asset allocation, with the proportion of ESG assets in the worldwide portfolios managed by this group expected to extend from 26.7% in 12 months to 43.6% in five years.
As ESG adoption increases, investors want more and higher tools to measure their ESG investments. The lack of quantitative data was cited by 63% of respondents as a challenge to ESG implementation. The results of this 12 months’s IIA benchmark survey support these findings: asset managers overwhelmingly want more ESG indices in asset classes beyond stocks.
Investor confidence is one other key factor driving the rapid adoption of ESG indices out there. According to our ESG survey, 80% of respondents consider indices help them quickly direct investments to corporations and sectors with strong ESG performance. An extra 73% consider indices improve comparability of ESG performance and 78% say indices increase their confidence within the reliability of ESG data. Given the rapid evolution of many ESG issues, three quarters of respondents find that indices help them respond quickly to emerging ESG concerns.
Beyond ESG, our benchmark survey uncovered several other areas for index expansion. Again, the variety of indices measuring bond markets has increased by almost 8% in comparison with last 12 months to reflect the attractiveness of multi-asset strategies for investors. That beat the 7.1% increase in 2020.
When it involves ESG and glued income, the survey found that there are 61% more ESG indices within the fixed income space. There were also impressive gains in high-yield bond indices and overall market or composite bond indices, in addition to fixed-income indices within the Americas.
Among equity categories, the thematic index cohort, alongside ESG, was the just one to post strong growth, up 27.5% year-on-year, albeit from a small base. This represents a little bit of a move away from smart beta investors towards more thematic investing approaches to achieve higher access to latest investment trends.
If you think, as I do, that there’s a lag between the creation of indices and the event and sale of such products to investors, the variety of products that asset managers bring to market will increase over the following few years. The results of our surveys over the past two years suggest that ESG and glued income are key areas for this growth. As more quantitative corporate disclosure data becomes available, higher ESG benchmarks shall be created, which can lead asset managers to develop higher investment products that reflect investors’ commitment to sustainable finance.
This is the fifth a part of a seriess from the Index Industry Association (IIA). The IIA will rejoice its tenth anniversary in 2022. Further information might be found on the IIA website at www.indexindustry.org.
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