Michael John Lytle, chief executive officer (left), and Jason Smith, chief investment officer (right), of Tabula, in a report released this week noted the significant rise in ESG indices that have benefited passive fixed income investors seeking sustainable opportunities without sacrificing returns or portfolio integrity. Photos: provided by Tabula, Montage: Maison Moderne

Michael John Lytle, chief executive officer (left), and Jason Smith, chief investment officer (right), of Tabula, in a report released this week noted the significant rise in ESG indices that have benefited passive fixed income investors seeking sustainable opportunities without sacrificing returns or portfolio integrity. Photos: provided by Tabula, Montage: Maison Moderne

More than 9 in 10 institutional investors and wealth managers expect an increase in ESG indices while maintaining returns and diversification, according to a recent survey by the European asset manager Tabula.

A poll of 100 European institutional investors and wealth managers, collectively managing over €150bn in assets, has indicated a strong expectation for growth in environmental, social and governance indices and confidence that ESG exchange-traded funds can deliver sustainable, risk-adjusted returns in fixed-income portfolios without sacrificing diversification. The survey was fielded for Tabula, a London-based asset manager and ETF provider focused on differentiated fixed-income strategies.

Anticipated growth in ESG indices

The data, gathered from respondents in the UK, France, Germany, Switzerland and Italy, highlighted a strong expectation for growth in ESG indices. An overwhelming 96% of participants expect an increase in the number of ESG indices within the next two years, with a fifth of those predicting a ‘dramatic’ increase. This trend, according to the released on Tuesday 7 November, reflects a burgeoning confidence within the industry concerning the integration of ESG criteria into core fixed-income investments.

As the investment landscape continues to evolve, Tabula argued that ESG fixed-income ETFs are being viewed as a potential cornerstone for portfolio construction, capable of maintaining risk-adjusted returns and diversification. Tabula further noted that over 97% of the surveyed investors and managers acknowledged the advancements in ESG fixed-income indexing that facilitate these sustainable core portfolio exposures.

ESG data quality

The quality of ESG data, particularly pertaining to the fixed-income sector, was rated positively by most respondents, with a quarter deeming it ‘excellent’ and 62% considering it ‘good’. However, a minority of 13% felt the quality was ‘average’, indicating room for improvement in the sector’s data standards.

Michael John Lytle, chief executive officer, and Jason Smith, chief investment officer at Tabula, both underscored the need for the continuous enhancement of the quality of ESG indices. They highlighted the importance of including issuers that have undergone thorough ESG assessments.

The findings of the survey, conducted in August 2023, suggest a growing consensus on the viability of ESG ETFs in achieving sustainable, risk-adjusted returns without compromising portfolio diversification, asserted Tabula.

Tabula ETFs, as of 8 November 2023, had $831.9m under management.

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