Blog Posts — April 12, 2019

Active Market Debut for ESG Futures

by Qontigo

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On Feb. 18 this year, a new chapter in responsible investing opened up with the listing of futures on three European environmental, social and governance (ESG) benchmark indices: the STOXX^® Europe 600 ESG-X Index, EURO STOXX 50^® Low Carbon Index and STOXX^® Europe Climate Impact Ex Global Compact Controversial Weapons & Tobacco Index.

March marked the first full calendar month of trading for these pioneer European ESG futures, and turnover data points to significant investor interest in the STOXX Europe 600 ESG-X. More than 14,000 futures contracts on the ESG-compliant version of the flagship pan-European benchmark exchanged hands on Eurex during the month, with a total of 33,509 contracts traded since launch. Open interest stood at 14,528 at the end of March and had risen to 23,127 by Apr. 11.

Trading in the other two contracts was more subdued. This may reflect the fact that ESG exclusions strategies, such as followed by the STOXX Europe 600 ESG-X, are the most popular and standard sustainable investing practice.¹

However, with interest in low-carbon and climate-impact strategies continuing to grow, demand for derivatives that help manage and hedge positions around those portfolios is likely to increase in coming months.

We expect strong development ahead

The introduction of the three derivatives contracts represented a milestone in responsible investing, improving liquidity and lowering costs for investors pursuing sustainable policies in Europe. The three underlying indices are derived from liquid and well-established benchmarks and share the rules and transparent methodology of the STOXX^® Europe 600 Index or EURO STOXX 50^® Index that many investors are familiar with.

The STOXX Europe 600 ESG-X tracks the STOXX Europe 600 Index minus those constituents involved in certain activities. These include businesses that produce or distribute controversial weapons, are tobacco manufacturers, generate or consume thermal coal, as well as those in breach of any of the 10 United Nations Global Compact principles.

March trading is encouraging and promises a strong development ahead for the new futures. At STOXX we look forward to accompanying investors in their transition to more sustainable portfolios.