ESG takes hold in all asset classes with fixed income the fastest growing

Asset managers predict nearly two-thirds of investment portfolios to contain environment, social and governance (ESG) elements within a decade, according to the second Index Industry Association (IIA) global survey.

The survey, which polled 300 investment fund companies in the US and Europe, found that projections for ESG growth have accelerated rapidly from where they were just one year ago.

The vast majority or 85% reported globally that over the past year, ESG has become more of a priority within their company’s overall investment offering or strategy, with just over a quarter saying it is “much more of a priority.”

It also showed that 40% of asset management portfolios are expected to include ESG elements, up 13 percentage points from the IIA’s 2021 ESG survey.

That projection grows to nearly six in ten or 57% of portfolios in five years, also an increase of 13 percentage points from 2021.

In the next decade, respondents expect ESG elements to be incorporated into nearly two-thirds or 64% of their portfolios – a notable hike from 52% in 2021.

“Results of our second annual survey confirm what we’ve been hearing 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 the strong demand from investors,” said Rick Redding, IIA CEO.

While ESG incorporation has increased across all asset classes, fixed income has emerged as the fastest growing. In one year, the number of asset management companies incorporating ESG principles in fixed income increased from 42% to 76%.

The report said that this puts fixed income on par with equities – long thought of as the ‘traditional home’ of ESG – which expanded from 53% of companies in 2021 to almost three quarters in 2022.

As for the toolkit, 93% agreed that environmental impact tracking tools, metrics and services were either highly or fairly effective, a significant improvement on the 66% from last year.

Ninety-two percent believed that social sustainability products were highly or fairly effective, up from 66% from 2021.

Similarly, 93% said the same for corporate governance, a notable jump from the 69% who found those tools effective in 2021.

However, ESG corporate data and ratings remain significant areas for improvement, with 31% of respondents citing a lack of transparency and the need for greater public disclosure of companies’ ESG activities.

Twenty nine percent also highlighted a dearth of data standardization across markets and sectors 28% pointed to a lack of agreed ratings and methods among providers while 23% said the same about quantitative data.

©Markets Media Europe 2022

 

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