Owing to the increasing popularity of exchange traded funds such as the SPDR Bloomberg SASB Corporate Bond ESG Select ETF (RBND) and the SPDR MSCI USA Gender Diversity ETF (SHE), among others, demand is soaring for ESG indexes.
Data confirm the rapid growth of this burgeoning index segment. The Index Industry Association (IIA) recently noted that the number of benchmarks jumped 4.43% over the past year, with ESG gauges leading the charge.
“The convergence of two major trends over the last three years – the rapid increase in ESG and fixed income indexes – resulted in the number of ESG fixed income indexes increasing by a record 95.8%, smashing the previous record of 61.09% in 2021. Equity ESG indexes grew at a slower, but extremely rapid rate of 24.15%, and for the first time were outnumbered by fixed income ESG indexes. Global fixed income ESG growth was the fastest at 122.5% with EMEA following at 92.5% growth from the previous survey,” according to the IIA.
There was strong growth in both ESG and non-ESG fixed income benchmarks, with the former point underscoring rising demand among advisors and other professionals for more products, such as RBND, that combine bonds with ESG.
“Overall fixed income indexes increased 4.52%, slightly outpacing equities which increased 4.29%. Muni indexes enjoyed the strongest year for non-ESG fixed income, growing 10.86% while the distribution across other categories remained stable led by Sovereign, Composite and Corporate Bond Indexes,” noted the IIA.
Interestingly, the Americas remain fertile territory for the addition of more ESG benchmarks because the region is home to the smallest number of indexes.
“While the Americas market has more fixed income indexes than other regions, the distribution of indexes across all regions remained stable and consistent with recent years. This is in contrast to equity indexes, where the Americas have the fewest indexes globally. The Americas have a much larger number of securitization, high yield and municipal bond indexes compared to the other regions,” concluded the IIA.
Other popular index-based ESG ETFs include the SPDR S&P 500 ESG ETF (EFIV), the SPDR Bloomberg SASB Emerging Markets ESG Select ETF (REMG), and the SPDR MSCI USA Climate Paris Aligned ETF (NZUS).
MSCI and S&P are among the leaders in ESG indexes, which is to the liking of many investors due to the strong brand recognition of those sponsors.
For more news, information, and strategy, visit the ESG Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.