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Blog Posts — October 12, 2020

Eurex to List Next Generation of ESG Derivatives Based on EURO STOXX 50, DAX Indices

Eurex is expanding its offering of derivatives tracking sustainability strategies with the launch of futures and options on two Qontigo second-generation environmental, social and governance (ESG) indices.

The contracts on the EURO STOXX 50® ESG Index and DAX® 50 ESG Index EUR price return version will be listed on Nov. 9. They add to the existing STOXX-branded derivatives tracking sustainable strategies and are the first to include an ESG integration methodology. 

The introduction of ESG derivatives has allowed investors to manage and hedge ESG portfolios in an efficient and principles-compliant way, and to lower the cost of trading. Futures on the STOXX® Europe 600 ESG-X Index broke ground when listed in 2019 and were followed by other regions earlier this year. Total traded notional in STOXX Europe 600 ESG-X futures and options has exceeded EUR 20 billion since launch in February 2019, while more than 800,000 contracts have exchanged hands so far this year.

“The EURO STOXX 50 ESG Index and the DAX 50 ESG Index both represent highly liquid solutions for asset owners who are looking for cost-effective ways to integrate sustainable factors in the core of their investments,” said Rodolphe Bocquet, global head of sustainable investment at Qontigo. “These indices are well suited for derivatives and are an important part of the comprehensive Qontigo sustainable investment ecosystem.”

Benefits of ESG futures

Money managers with responsible mandates can find that the use of ESG derivatives is materially cheaper when hedging or managing flows of sustainable portfolios, than buying a whole basket of ESG-selected stocks. For many of them, the use of conventional index futures is banned by their responsible-investing rules.   

ESG indices: from exclusion to active integration strategies

The EURO STOXX 50 ESG Index and DAX 50 ESG Index remove companies in undesirable or controversial activities, and also integrate sustainability parameters into stock selection, meaning they prioritize or overweight companies with the highest ESG scores while underweighting the laggards. 

The EURO STOXX 50 ESG Index1 is based on the EURO STOXX 50® Index, one of Europe’s flagship benchmarks. The DAX 50 ESG is designed to ensure an ESG index whose liquidity and risk-return characteristics are similar to those of Germany’s DAX®.2 Sustainalytics provides the ESG analysis and scoring for the indices.

Qontigo’s ESG ecosystem

The two indices are a leg up from a starting base of exclusionary screening, represented by the STOXX® ESG-X Indices, and are aimed at investors who want to attain a higher level of responsible standards. To explore the entire Qontigo ESG Ecosystem, visit our dedicated page or read a recent blog article here

Building the road to sustainability 

Responsible investing continues to gather pace and find its way to the core of the world’s largest portfolios. Qontigo is proud to support the transition to a more sustainable marketplace with solutions that enhance transparency and liquidity and that respond to the needs of investors leading the way in this field.

Featured indices
DAX® 50 ESG Index

1 The EURO STOXX 50 STOXX excludes companies that Sustainalytics considers to be non-compliant with the Global Compact Principles; are involved in controversial weapons; are tobacco producers; or that either derive revenues from thermal coal extraction or exploration, or have power generation capacity that utilizes thermal coal. In addition to the exclusion screens, 10% of companies with the lowest ESG scores are excluded and are replaced by companies with a higher ESG score from the same ICB Supersector as the excluded companies.

2 The selection universe for the DAX 50 ESG index is the HDAX® index, which comprises all equities that belong to either the DAX, MDAX® or TecDAX® indices. The DAX 50 ESG features standardized negative screens for companies that are involved in controversial activities – controversial weapons, military contracting, nuclear power, thermal coal, tobacco – or fail the standardized ESG screens within the Global Standard Screening. The remaining stocks are ranked according to market capitalisation, stock exchange turnover and ESG scores calculated by Sustainalytics. From this list, the top 50 stocks are selected for the index.