Eurex on Feb. 18 listed the first three futures on European benchmarks for responsible-investment criteria, climate impact and low-carbon focus. To find out more about the contracts and environmental, social and governance (ESG) strategies, we caught up with Michael Peters, Deputy Chief Executive Officer of Eurex.
The futures contracts are available 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. Those indices are derived from either the STOXX® Europe 600 Index or the EURO STOXX 50® Index.
This is the third instalment in an interviews series about the ESG futures. Pulse Online also talked to Rick van Leeuwen, Head of Institutional Trading at market-maker IMC Trading, and Magnus Linder, Head of Derivatives at Swedbank Robur. We also published an article by Inderpal Gujral, Head of Product at STOXX, about the global evolution in ESG investments.
Michael, what will these European futures do for investors?
These contracts will offer investors, primarily, access. Specifically, low-cost access to a range of ESG strategies via listed, exchange-traded, futures. This opens the possibility for those portfolio managers with an ESG mandate to expand their toolbox of investible instruments.
The contracts track ESG-compliant versions of well-established European benchmarks. Why did Eurex choose them as underlying for the first ESG futures?
The selection criteria for these three new ESG futures was based on feedback from the most interested clients, all of whom requested Eurex to base the new contracts on existing liquid benchmarks. Our members’ familiarity with the STOXX Europe 600 and EURO STOXX 50 benchmarks made them a perfect choice upon which to base these new ESG futures. A secondary consideration was to mitigate tracking error versus these established benchmarks, thus improving the likelihood that investors would become early adopters. Using the existing liquidity pools, Eurex provides a suite of related ESG products where transparent and competitive quoting is readily offered. Selecting STOXX is logical given their well-established reputation as a reliable partner. The three indices cover different ESG strategies on European equities: ESG exclusions, climate impact and low carbon.
Responsible and sustainable investing is transforming the asset-management industry and is now entering the derivatives market. What does this new step say about the future growth of ESG investing?
It simply says that ESG investing is here to stay. There has been somewhat of a convergence of methodologies, which leads to the possibility to offer a standardized derivative product. Whilst there is still capacity for further standardization, the ESG theme has clearly gone mainstream. The Eurex response opens the market further to new participants, and for existing participants we offer three tradeable benchmarks.
