Goldman Sachs is the first issuer to launch ESG warrants and so-called turbos on 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. The three liquid ESG benchmarks underlie since February Europe’s first environmental, social and governance (ESG) futures.
The STOXX Europe 600 ESG-X Index is the ESG-compliant version of Europe’s most used benchmark, the STOXX® Europe 600 Index. In total, 23 companies are currently excluded based on norm- (United Nations Global Compact principles) and product-based screenings (including controversial weapons, tobacco and thermal coal), meeting the responsible investment policies of the world’s largest asset owners and investors.
The other two indices address portfolios’ climate risks. The low-carbon version of the EURO STOXX 50® Index lowers the carbon footprint of the flagship Eurozone blue-chip index by 50%. The STOXX Europe Climate Impact Ex Global Compact Controversial Weapons & Tobacco Index includes companies that are taking leading action against climate change as well as those managing its effect, while also excluding businesses involved in controversial activities and operations.
“The launch of the first leveraged products linked to these STOXX European ESG benchmark indices allows Goldman Sachs to remain at the forefront of responsible investments offered in a simple, easily accessible and cost-effective way to a wide range of customers,” said Steffen Biallas, Goldman Sachs’ Head of Public Distribution EMEA for securitized derivatives.
ESG entering new markets
STOXX indices are liquid and easy to trade and therefore extensively used as underlying for structured products. Its global footprint is made up of an extensive range of leveraged and investment certificates, with over 100,000 certificates, warrants and notes tracking STOXX indices outstanding at the end of 2018.
The launch of the warrants introduces ESG to a channel favored by European retail investors, widening sustainable investing’s universe and scope as the responsible revolution evolves.
Significant interest in ESG futures
April marked the second month of European ESG futures trading, and turnover indicates significant investor interest in the STOXX Europe 600 ESG-X. The futures posted a record daily volume of 13,093 contracts traded on Apr. 17. Open interest stood at over 32,000 contracts at the end of April, taking the outstanding notional value to 469 million euros.
The largest market-makers have committed to provide liquidity to the ESG futures. A liquid futures market is vital for issuers to hedge the position created by selling structured products.
“The importance of ESG information is constantly increasing as sustainable investing is becoming more attractive for investors worldwide,” said Michael Peters, Member of the Eurex Executive Board. “This is why we went ahead with our ESG derivatives launch to enable to manage sustainable risks. We are so far very pleased to see several buy-side firms embracing our new products.”
Sustainable offering continues to grow
“After opening a new chapter in responsible investing with the listing of futures on three ESG benchmark indices, we are now reaching another milestone by entering into the leveraged products space,” said Inderpal Gujral, STOXX’s Head of Product. “The massive growth of ESG investing has created demand for sophisticated or diversified index concepts that reflect sustainability factors. The launch of the first leveraged products on our ESG benchmark indices also underscores STOXX’s strong position and innovative spirit in the structured products markets.”
STOXX entered the space of sustainable investing in 2001, and has since created a family of more than 150 ESG/Sustainability and Low Carbon indices. Please visit our blog in coming days as we introduce new ESG-compliant indices and sustainable strategies.