Fixed income environmental, social and governance (ESG) indices experienced record-breaking growth last year as index providers look to diversify their ESG product offering, according to the latest Index Industry Association (IIA) global benchmark survey.
ESG fixed income indices grew by 61% over 2020 – a record across all categories – as the boom in ESG investing found its way into the global bond markets, the survey found.
More broadly, the number of indices measuring ESG criteria grew by a record 43% over the year, up from 40% in 2019, as investor demand continued to grow.
The IIA said the growth is a testament to investors’ attitude to ESG investing. According to its ESG survey earlier this year, 85% of asset managers consider ESG a high priority, while expecting the proportion of ESG assets in their portfolios to grow from 26.7% to 43.6% in five years.
Rick Redding, CEO of IIA, said: “For the second consecutive year, we have seen record-breaking growth in the number of ESG indices, with fixed income continuing to be the asset class benefitting the most from that growth.
“Indices are an indispensable piece of the global investing landscape and are a reliable and transparent measure of what the markets are telling investors.”
Overall, the total number of indexes climbed by 5% in 2020 – despite global volatility and pandemic-driven uncertainty – a slight uptick on the 3% growth recorded in the previous year.
Fixed income indices increased by 7.7% over the year, taking total growth to roughly 15% over two years. Alongside ESG, growth was driven by high yield and composites which grew by 12.3% and 9.2%, 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,” Redding added.
“Fixed income growth shows no signs of slowing and mirrors the larger index industry in its capacity for ESG growth and diversification.”
The increased demand for fixed income ESG products looks to have played out in 2021, with fixed income ESG ETFs pulling in €13.4bn to the end of August.
Equity continued to be the dominant asset class, accounting for 76% of indices compared to 23% focused on fixed income.
Thematic investments also recorded significant growth over 2020, increasing by 27.3% while still making up a small percentage of indices.