NEW YORK–(BUSINESS WIRE)–Despite global economic uncertainty and recent geopolitical turmoil, asset managers have reported strong growth in ESG investing over the past year across all asset classes and believe this is will continue in the future.
The second annual Index Industry Association (IIA) Global ESG Asset Manager Survey found that the vast majority (85% globally) said that over the past year ESG has become a priority in their company’s overall investment offering or strategy, with just over a quarter (26%) saying it’s “much more of a priority”.
“The results of our second annual survey confirm what we have heard from our members: the asset management community wants to work with index providers to help drive ESG innovation and provide new options to help meet strong investor demand,” said Rick Redding. , CEO of The IIA. “The survey results highlight that, among the many links in the ESG value chain, The IIA members play an important role in providing independent credentials to ESG stakeholders.”
The survey, which surveyed 300 investment fund firms in the United States and Europe, found that ESG growth projections have accelerated rapidly from where they were just a year ago. Over the next 12 months, 40% of asset management portfolios are expected to include ESG elements (up 13 percentage points from The IIA’s 2021 ESG survey). This projection rises to nearly six in ten (57%) portfolios in 5 years (up 13 percentage points from 2021). Over the next decade, respondents expect ESG elements to be integrated into nearly two-thirds (64%) of their portfolios – a notable increase from 52% in 2021.
Fixed income securities on the rise
While ESG integration has increased across all asset classes, fixed income securities have become the fastest growing ESG asset class. In fact, more than three-quarters of companies (76%) are now implementing ESG criteria in fixed income, up from 42% in 2021. This puts fixed income on par with equities – long considered the “traditional focus” of ESG – which grew from 53% of companies in 2021 to almost three-quarters (74%) in 2022. Commodities also show notable growth in ESG criteria, with 47% of companies management surveyed who now apply ESG criteria for this asset class, compared to 37% in 2021.
“E” Always the main objective
While the majority of asset managers surveyed integrate all three ESG elements into their portfolios, this year’s survey shows that the “environmental” part takes priority. Overall, four-fifths (80%) of respondents agreed that “environmental criteria almost always tend to take priority over social and governance criteria”. It’s hard to see this as the current reality of ESG investing, as almost the same proportion (78%) agreed that “environmental criteria should still give priority to social and governance criteria.
Within the environmental dimension, climate change issues are a top priority for ESG investors. Three-quarters (75%) of survey respondents agreed that “environmental performance tends to focus only on climate change and/or carbon footprint”, while 74% said “most our ESG portfolios are uniquely climate focused.”
ESG “toolkits” have improved significantly, but improvements are still needed
More than nine in ten (93%) survey respondents agreed that environmental impact monitoring tools, metrics and services were very or somewhat effective, a significant improvement from 66% who felt they were effective in 2021. Ninety-two percent agreed that sustainability tracking tools, metrics and services were very or somewhat effective, also a major improvement from 66% in 2021. Similarly, 93% said corporate governance tracking tools, metrics and services are very or somewhat effective, a notable jump from the 69% who found these tools effective in 2021.
Yet corporate ESG data and ratings remain important areas for improvement, with 31% of respondents citing a lack of transparency and the need for greater public disclosure of corporate ESG activities. They also highlighted a lack of standardization of data across markets and sectors (29%), a lack of ratings and agreed methods between vendors (28%) and a lack of quantitative data (23%).
Despite recent geopolitical and economic turbulence, a large majority of respondents indicated that ESG measures have tracked global events very well (30%) or fairly well (59%) over the past 12 months. However, respondents saw room for improvement, particularly around the need for better integration of geopolitical risk factors.
The useful role of ESG indices
As ESG investing continues to grow, the survey results reaffirm the supportive role indices play in ESG investing and benchmarking. Almost all (99%) of the asset managers surveyed use indices in some form or another, with 41% using them for measurement/benchmarking purposes, 31% using them for investment strategies and slightly more for a quarter of respondents (27%) use them for both. .
Index providers retain the trust of asset management firms to advance ESG investing. Nearly nine in ten respondents (89%) trust index providers a lot (45%) or somewhat (44%) to promote innovation and ESG standards in financial services – tied with regulators and the financial sector. asset management itself (91% each). .
“In the face of geopolitical events and changing regulations, the reliability and transparency of ESG indices are critical to the investment ecosystem,” Redding said. “As ESG investing continues to grow, the index industry will continue to respond to investor demand for better benchmarks.”
Opinium, an independent strategic analysis agency, surveyed 300 chief investment officers, finance directors and portfolio managers in four markets: the US, UK, France and Germany.
The survey included 80 respondents each from the US and UK and 70 each from France and Germany. Fieldwork was conducted from May 3rd to May 25e2022.
About the Index Industry Association (IIA)
IIA is an independent, nonprofit organization based in New York. Founded in March 2012 to give voice to the global index industry. The IIA works with market participants, regulators, and other representative bodies to promote competition and best practices in the index industry with the goal of strengthening financial markets and helping them better meet the needs of investors. Our members have been calculating indices since 1896 and today administer over 3 million indices. These indices cover a wide variety of asset classes, including equities, fixed income, commodities and currencies.
Many of the world’s leading index providers are members of The IIA, including Bloomberg Indices, Cboe Global Markets, Chicago Booth Center for Research in Security Prices (CRSP), China Central Depository and Clearing, China Securities Information Co., FTSE Russell, Hang Seng Indices, Intercontinental Exchange (ICE) Data Services, Morningstar Indexes, MSCI Inc., Nasdaq Global Indexes, Parameta Solutions, Qontigo (DAX and STOXX indices), Shenzhen Securities Information Co., Ltd., S&P/Dow Jones Indices, and the Tokyo Stock Exchange.
Visit the newly redesigned IIA website for more information at www.indexindustry.org.