Two Qontigo second-generation environmental, social and governance (ESG) indices underlie as of today new futures and options on Eurex, expanding the toolbox in the growing space of sustainable investing.
The contracts on the EURO STOXX 50® ESG Index and DAX® 50 ESG Index EUR price return version add to the existing STOXX-branded derivatives tracking sustainable strategies and are the first to include an ESG integration methodology. The entire suite has been designed to help investors more efficiently and economically hedge and manage flows of sustainable portfolios.
The EURO STOXX 50 ESG Index and DAX 50 ESG Index remove companies involved in activities that are undesirable or controversial from a responsible-investing perspective, and also integrate sustainability parameters into stock selection, meaning they prioritize companies with the highest ESG scores over the laggards.
The EURO STOXX 50 ESG Index1 is based on the EURO STOXX 50®, 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.
The two indices are a leg up from a starting base of exclusionary screening, such as used in the STOXX® ESG-X Indices, and are aimed at investors who want to attain a higher level of responsible standards.
Benefits of ESG futures
Responsible investing continues to gather pace and find its way to the core of the world’s largest portfolios. Money managers with responsible mandates can find that the use of ESG derivatives materially lowers costs when hedging or overseeing liquidity of sustainable portfolios, relative to buying a whole basket of ESG-selected stocks. For many of them, the use of conventional index futures is banned by their internal rules.
1 The EURO STOXX 50 excludes companies that Sustainalytics considers to be non-compliant with the Global Standards Screening; 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 removed and 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 excludes companies that Sustainalytics considers to be non-compliant with the Global Standards Screening, or are involved in the following controversial activities: controversial weapons, military contracting, nuclear power, thermal coal or tobacco. The remaining stocks are ranked according to market capitalization, stock exchange turnover and ESG scores calculated by Sustainalytics. From this list, the top 50 stocks are selected for the index.