In recent years, investor demand for responsible investment (RI) solutions has increased significantly, as observed by the growth of assets being allocated to RI-related investments. Combined with a shift toward low-cost equity index tracking, this has led to an increase in the number of RI indices that are now available. As environmental, social and corporate governance (ESG) data become more readily available, higher quality and more standardized, we expect RI indices to become an important step in integrating ESG considerations for many investors with existing index-tracking or factor-based investments.
Although we believe RI indices will have an important role to play for many investors, they are not passive investments and should be subject to due diligence. We have undertaken initial research on several RI index providers. Today, the majority of RI-indexed/benchmarked assets are tracking indices developed by index providers. However, asset managers are also focusing on self-indexation using proprietary ESG ratings and developing solutions using their own intellectual capital. We believe there are potential benefits to using this latter approach, making both approaches equally worthy of consideration.
Our detailed article on RI indices provides:
- A more comprehensive view on the opportunity set of RI categories that are reflected in indices
- Aspects to consider in index construction and the potential unintended consequences of selecting an index
- The pros and cons of selecting an index provider versus a self-indexed solution through an asset manager
We invite you to read more about the type of available indices, things to consider when selecting an RI Index and Mercer’s views.