- The rapid growth of environmental, social, and governance (ESG) indexes continues, with fixed-income-focused ESG indexes leading the way.
- The number of ESG indexes grew by 55%, with fixed-income ESG indexes increasing by 95.8%.
- Asset managers are implementing ESG criteria within fixed-income investments, with 76% of managers incorporating ESG in this asset class.
- The growth of fixed-income indexes outpaced that of equity indexes for the third consecutive year.
- Better ESG data allows index providers to create more accurate benchmarks, leading to better investable products for asset managers and increased confidence for investors.
- The Americas has the largest percentage of fixed-income indexes, indicating a trend of creating new fixed-income benchmarks in this region.
The latest Index Industry Association (IIA) global membership survey reveals that the expansion of environmental, social, and governance (ESG) indexes is gaining momentum across different asset classes. The survey found that the number of ESG indexes grew by 55%, with fixed-income-focused ESG indexes driving the majority of this growth.
Over the past six years, the IIA has been collecting data from its members to understand the evolving landscape of indexes and benchmarks. The latest survey shows that index providers now administer over three million indexes, with equity indexes comprising 76% of the global total. Benchmarking remains the primary use case for indexes, with only about 11,000 global exchange traded products (ETPs) available.
The global asset managers report by the IIA highlighted an increased demand for ESG fixed-income indexes, and index providers have responded accordingly. The number of ESG fixed-income indexes has grown by 95.8%, surpassing the number of ESG equity indexes for the first time. This growth in fixed-income indexes aligns with asset managers’ preference for incorporating ESG criteria within fixed-income investments. In fact, 76% of asset managers implemented ESG criteria in their fixed-income investments this year, compared to 42% in the previous year.
The growth rate of fixed-income indexes has outpaced that of their equity counterparts for the third consecutive year. Fixed-income ESG indexes saw the fastest growth globally, expanding by 122.5%. European fixed-income ESG indexes also experienced substantial growth, with a 92.5% increase. Municipal bond indexes within the non-ESG fixed-income category grew by 10.9%.
The research and development that go into creating benchmarks and indexes ultimately benefit investors. With better ESG data, index providers can create more accurate benchmarks that track the market effectively. This, in turn, enables asset managers to develop better investable products. As a result, investors have more confidence that their investments align with their expectations.
Contrary to popular belief, the Americas does not have the largest percentage of equity indexes. However, the region is leading the way in creating new fixed-income indexes. The Americas market has a higher percentage of fixed-income indexes, including securitized benchmarks, high-yield, and municipal bond indexes, compared to other regions.
The distribution of indexes across regions has remained stable and consistent over the past few years. It will be interesting to see if these trends continue to gain momentum or if they start to decline in the coming year.
In conclusion, the increasing demand for ESG fixed-income exposure is driving the growth of ESG indexes. As more asset managers incorporate ESG criteria in their fixed-income investments, index providers are responding by creating a greater number of fixed-income ESG benchmarks. This trend highlights the importance of ESG data in creating accurate benchmarks and providing investors with better investment options.
