Banking Exchange Magazine Logo

Indexing Giants ‘Should Prepare for Disruption’ Says New Report

A report by Planet Tracker suggests rising demand for sustainable investment is challenging the largest index providers

  • |
  • Written by  Banking Exchange staff
  • |
  • Comments:   DISQUS_COMMENTS
Indexing Giants ‘Should Prepare for Disruption’ Says New Report

MSCI, FTSE Russell, S&P Dow Jones and Bloomberg could see their dominance of the indexing industry threatened by sustainability specialists, according to a new report.

Research by non-profit think tank Planet Tracker found that the world’s largest index providers were being challenged by competitors and their clients, and should prepare for “disruption” driven by the rising demand for sustainable investment.

Planet Tracker’s findings were published in its Prepare for Sustainability-driven Disruption Report. The analysis covering indexes and bank communications cited three main reasons for the “inevitable” disruption of the benchmarking industry.

The first was falling fees: financial institutions that charge index fees based on assets under management will be keen to ensure they remain competitive, Planet Tracker said.

Secondly, the think tank stated, index majors faced competition from their own clients. In its 2020 annual report, MSCI cited asset managers and investment banks as potential competitors as they were starting to create their own benchmarks. In addition, the annual report revealed MSCI’s high dependency on BlackRock in particular. The world’s largest asset manager’s index-tracking mutual funds and exchange-traded funds accounted for 11% of total revenues in 2019.

The third issue highlighted by the Planet Tracker report was growing demand for consumer choice. Demand for ESG- and sustainable-themed offerings were likely to remain strong for equity and fixed income assets, requiring more choice in indexes. Consultancy PwC has dubbed ESG investing the “growth opportunity of the century”.

Existing mainstream indexes such as the S&P 500, FTSE 100, and MSCI World have been criticized for their “lack of customization and transparency over sustainability metrics”. MSCI, however, has a range of ESG-themed index “families” providing sustainability-tilted versions of their main global and regional benchmarks.

The Planet Tracker report stated that index providers were responding with offerings to address these flaws, with the number of ESG indexes rising by 14% across equities and fixed income in 2019. Self-indexing and direct indexing are becoming increasingly prevalent among financial institutions and investors.

John Willis, director of research at Planet Tracker, said: “The index production landscape is evolving to meet the demands of sustainability-based investment products. Declining fund fees, rising competition in index production and demand for greater consumer choice have all arrived at the same time as the upswing in sustainable investing.

“This offers sustainable investors an opportunity to invest in line with their personal principles, rather than taking the templates on offer. For the braver ones, direct indexing is an option. As for corporates, being included in a popular sustainable index could provide a cost of capital advantage.”

back to top


About Us

Connect With Us


Webinar: From KYC to IDV

How three leading banks are utilizing cutting-edge
digital tools to onboard, win, and wow customers

Time/Date: June 23, 2021 11:00 a.m. ET

Digital adoption, already moving at warp speed, accelerated seven years into the future during the COVID-19 pandemic. As the number of bank branches continues to fall, with at least one study predicting all branches will disappear by 2034 (Fox Business) and foot traffic declining (Vox), today’s most innovative banks are charting a new, digital-first path to win over customers while increasing security, meeting KYC compliance requirements, and winning customers to drive revenue.

In this webinar, you’ll hear from John Baird, Founder & CEO of Vouched, Tyler Crawford, COO of Bankers Healthcare Group, Anand Sathiyamurthy, CPO of Flagstar Bank and Daniel Sheehan, Chairman & CEO of Professional Bank as they describe their vision for digital transformation and how customer expectations are changing to digital first. They’ll also explore how fostering an innovation mindset creates new ways to tackle complex KYC problems and allows them to quickly compete in new markets and win customers.


This webinar is brought to you by:
Vouched Logo