Index industry survey sees ESG in two-thirds of portfolios in 10 years

Nearly two-thirds of investment portfolios will include ESG within a decade, asset managers said in a global survey conducted by the Index Industry Association and released Thursday.

The survey also found use of ESG principles in fixed-income equaling equities, and improved ESG tools.

The Index Industry Association, based in New York, represents the global index industry and its members administer more than 3 million indexes covering many asset classes, including equities, fixed income, commodities and foreign exchange.

Conducted by independent research agency Opinium, the ESG survey polled 300 CIOs, CFOs and portfolio managers in the U.S., U.K., France and Germany in May 2022.

It is IIA's second annual survey on the topic of ESG in asset management. For 85% of asset managers surveyed, ESG became a priority over the past year.

Over the next 12 months, respondents said they expect 40% of asset management portfolios to include ESG elements, a 13 percentage-point increase from the 2021 survey.

In five years, they expect that to grow to 57% of portfolios, also a 13-percentage point increase from 2021, and to 64% of portfolios in the next decade, up from 52% in the previous year's survey.

For fixed-income managers, the percentage incorporating ESG principles increased to 76% from 42% the previous year, making it the fastest-growing asset class in the survey. For equities, ESG principles increased to 74% from 53%, while for managers of commodities, it grew to 47% compared with 37% in 2021.

By ESG topic, 80% of managers reported prioritization of environmental criteria over social or governance issues, and 78% said that should continue. Among environmental issues, climate change was the dominant focus, and 74% of respondents said that most of their ESG portfolios are climate only.

Most respondents saw improvement in environmental impact tracking methods, with 93% considering them effective, compared to 66% in 2021. They also saw improvement in social sustainability tracking, with 92% rating them effective compared to 66% in 2021, and corporate governance tracking tools considered effective by 93% compared to 69% the previous year.

Areas for improvement included more transparency and disclosure of corporate ESG data and ratings, data standardization across markets and sectors, provider agreement on ratings and methods and quantitative data, survey respondents said.

The need for better integration of geopolitical risk factors was also cited, although respondents said that ESG measures are keeping up with the recent geopolitical and economic turbulence.