ESG continues to emerge as a consistent conversation theme in the investment community, driven by a strong storm of regulatory, political and natural change. There is a fundamental transfer of wealth to a younger, more environmentally conscious generation occurring. This makes ESG more than an investment theme or an adaptation to regulatory change; it makes ESG a tremendous business opportunity and a chance to lead by creating positive change.
Eurex was one of the first derivatives exchanges to identify this opportunity and is now the clear leader in offering liquid and cost-efficient alternatives to manage undesired sustainability risks and ESG investment mandates. Eurex introduced its ESG product suite with three futures on sustainable versions of the highly liquid European STOXX® benchmarks in February 2019. Its success triggered other unique introductions, such as options based on the leading STOXX® Europe 600 ESG-X Index, options and futures on STOXX® Europe ESG Leaders Select 30, the STOXX® USA 500 ESG-X Index future as well as new futures using MSCI ESG Screened Indexes covering USA, World, EM, EAFE and Japan.
The value of outstanding positions of over EUR 550 million in STOXX® Europe 600 ESG-X futures - the most popular ESG derivatives contract, the first trades in the MSCI Emerging Markets ESG Screened futures (with a size of over EUR 20 million nominal) and STOXX ®ESG Leaders Select 30 options (with a size of nearly EUR 50 million nominal), are testament of the continuous success and need for ESG derivatives.
Looking forward, ESG will become an integral part of the investment landscape and Eurex truly believes that its responsibility does not stop with the introduction of products.
In 2020, Eurex has held several webinars with ESG as a focus with more than 1000 participants in total, and recently, contributed to a report on sustainable investing, written by the Pension Fund Service (PFS), an independent U.K. government-supported advisory and the World Bank. This report has a particular focus on sustainable investing through the lens of European Pension Funds and provides guidance to investors that start on their journey of sustainable investing.
The report includes interviews with Metzler Asset Management and Quintet Private Bank. Metzler provides insight into their holistic approach into sustainable investing and how ESG factors are incorporated in the evaluation of business models. Quintet Private Bank describes how ESG is incorporated in the fixed-income segment and the particular challenges in analyzing the investment aspects.
A focus article on the performance of ESG indexes during the COVID-19 crisis is also included in the report. The Corona pandemic was the first real-life test of the resilience of companies with a high ESG rating. MSCI analyzed their ESG indexes versus the performance of parent indexes.
Since 1 June 2020, six additional ESG futures are available to U.S. trading participants:
- STOXX® USA 500 ESG-X Futures (FSUS)
- MSCI EAFE ESG Screened Futures (FMSF)
- MSCI Japan ESG Screened Futures (FMSJ)
- MSCI Emerging Markets ESG Screened Futures (FMSM)
- MSCI USA ESG Screened Futures (FMSU)
- MSCI WORLD ESG Screened Futures (FMSW)
Therefore, the report also includes a focus article on the STOXX® USA 500 ESG-X index, outlining the screening and exclusion criteria as well as the fast exit rule if included companies are in breach of the criteria.
Given the growth of and interest in the ESG segment, it is safe to assume that sustainable investing will become a major force across global financial markets. ESG derivatives will play a vital role in the life cycle of the investment management process.
As an exchange, Eurex is more than ready to expand its leadership role further, and we invite you to explore this new frontier of People, Planet and Profit with us.
