According to a recent survey conducted by the Index Industry Association (IIA), the asset management community has seen a significant increase in the adoption of environmental, social, and governance (ESG) benchmarks and indexes over the past two years. These indexes have expanded beyond traditional areas of integration and are now being utilized in new asset classes and strategies.
The IIA conducts an annual benchmark survey to track the growth of the index industry. Last fall, the survey revealed an 85% increase in the number of ESG indexes over the last two years. Subsequent surveys of global asset managers in 2021 and 2022 confirmed that index providers are effectively meeting the ESG needs of the investment community.
The results of the most recent ESG Global Asset Manager Survey by the IIA are particularly noteworthy. The survey, which queried 300 investment fund companies across Europe and the United States, found that ESG factors have become even more important to global asset managers in the past year. 85% of asset managers reported that ESG has become a larger priority within their company’s overall investment strategy.
Furthermore, the survey indicated that asset managers expect to see a significant increase in the integration of ESG considerations into their portfolios in the future. Expectations for ESG portfolio percentages within the next 12 months increased by over 13% compared to the previous year’s survey. Additionally, asset managers anticipate that 64.2% of their portfolios will contain ESG elements within 10 years.
ESG integration has also expanded beyond equities into other asset classes. The survey revealed that 76% of investors are implementing ESG factors in their allocations to fixed income, a significant increase from 42% the previous year. The use of ESG criteria in all major asset classes is expected to increase in the next 12 months according to over 80% of global asset managers.
The survey results suggest that better data and research in fixed income have motivated asset managers to incorporate sustainable investing across asset classes and portfolio holdings. Over 90% of respondents agreed that environmental impact, social sustainability, and corporate governance tracking tools and services were effective.
Despite concerns about greenwashing and disparate data, asset managers are giving equal weight to environmental, social, and governance components. However, environmental criteria were considered a higher priority than social and governance criteria by 78% of respondents.
Looking ahead, global asset managers anticipate further expansion and demand for ESG investing across more asset classes. However, questions remain about the availability and quality of data, as well as the development of a global consensus on social and governance criteria.
