ESG benchmarks saw record growth in 2021, finds study

Index industry association survey sheds light on growth in responsible investing, fixed income indices

ESG benchmarks saw record growth in 2021, finds study

Investors looking passive exposure to the financial markets have more options than ever with respect to ESG, according to the latest survey findings by the Index Industry Association (IIA).

In its fifth annual global benchmark survey, the IIA found that the number of indices overall have risen by roughly 5% year-on-year, slightly faster than the 3% observed in the previous 2020 survey.

“The index industry continues to broaden and innovate its offerings in this highly competitive environment to address investor demand,” said IIA CEO Rick Redding. “Indices are an indispensable piece of the global investing landscape and are a reliable and transparent measure of what the markets are telling investors.”

Teasing apart the data, the IIA found the number of ESG indices rose by 43.2%, compared to a 40.2% rise from 2019 to 2020. That finding aligns with the IIA’s ESG survey earlier this year, where 85% of asset manager respondents agreed that ESG was a high priority for their companies; respondents from that study also projected the proportion of ESG assets in their portfolios would rise from 26.7% in 12 months to 43.6% in five years.

IIA’s latest research also pointed to impressive growth in fixed-income benchmarks over the past two years. The number of indices measuring global bond markets has seen a near-15% rise; within fixed-income indices, ESG has posted record-breaking 61% growth, while high yield and composites grew by 12.32% and 9.18%, respectively.

“The growth in fixed income indices has been driven primarily by the tremendous growth in ESG along with diversification into high yield and composites. Fixed income growth shows no signs of slowing and mirrors the larger index industry in its capacity for ESG growth and diversification,” Redding said.

From an equity perspective, thematic indices swelled by 27.25% as independent index providers continued to scour the thematic investment space, though that category still accounted for a relatively small proportion of equity indices. All in all, equities represented 76% of indices, while 23% were focused on fixed income.