SRP AMERICAS
SRP Americas 2022: lack of ESG regulation will impact indexing Rick Redding, CEO of the Index Industry Association (IIA), shared the most recent developments in the indexing space and his views about the challenges index providers face as new ESG (climate disclosure) and retail investors (complex products) come into force.
Lack of regulation will cause problems
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ver the last two years the number of fixed income indexes has grown by 15% which is much higher than what we have seen in the past, according to Rick Redding, president of the Index industry Association (IIA) (pictured).
bigger than in Europe where you don’t see municipal bonds”.
On the equity side, equity indexes continue to dominate representing 76% of global indexes yet the increase in interest rates and inflation fears have triggered a shift towards index-linked protected products, which “is really interesting because back to mid last year, when the market was going straight up, few investors were looking for those kind of products”.
From an asset class allocation, fixed income is on par with equities with commodities increasing their weight in portfolios compared to last year.
Redding noted that the Fifth Annual IIA Benchmark survey revealed significant growth in ESG, continued fixed income innovation, and heightened competition among index providers. The survey unveiled more than 43% increase in indexes measuring ESG criteria, 61% increase in fixed income indexes, while thematic equity indexes grew more than 27%. With almost 35% of the market share, the Americas remain the largest provider of fixed income indices “because of the collateralisation infrastructure market which is significantly
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In the equity side, global indices dominate with 28.5% market share while the Americas only represent 9.05%.
According to Redding, the shift towards ESG has also been noticeable in the indexing space over the last two years - the latest IIA ESG survey with 300 asset managers in Europe and the US found that ESG has become a priority for many asset managers and that the percentage of ESG assets allocated to portfolios is also expected to increase going forward. However, the lack of regulation will cause problems to the index industry because some of the implications of the new regulatory developments go “beyond geographies”. According to Redding, ESG can be compared to technology which has also been a disrupter in the indexing space and will continue to be in the coming years which poses challenges because of the lack of a regulatory structure.
