Eurex will on Feb. 18 list the first three futures on European benchmarks for responsible-investment criteria, climate impact and low-carbon focus. To find out more about the futures market for environmental, social and governance (ESG) strategies, our colleagues at Eurex and ourselves caught up with Rick van Leeuwen, Head of Institutional Trading at IMC Trading.
IMC Trading, a global market maker, will provide liquidity in the ESG futures.
The futures contracts will be made 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.
Rick, what’s the implication of having a futures market for ESG investors? What needs will it fulfill?
Having a futures market will provide another tool for investments in ESG. For example, investors will now be able to hold a percentage of their portfolio in futures, thus enabling them to handle inflows and outflows in an efficient manner.
What does ESG mean for a market maker like IMC?
Firstly, market making is in our core, providing liquidity at a fair price, creating efficient markets. We also take our own social responsibility seriously, supporting various good causes through our own charitable foundation. By being a market maker of ESG products we are pleased we can now use our core competency to also enable investors to invest responsibly, and at a fair price. We are very happy to be part of this STOXX and Eurex initiative.
What does having a market maker mean for the contracts? What are the benefits?
Market makers provide constant liquidity, which is crucial for a robust trading ecosystem. By providing constant buy and sell quotes we can ensure ESG investors will always have a reference market price and can always buy and sell in large or small quantities. This is especially crucial for new products as there will not be any natural liquidity available.
From what you see in the market, is demand for ESG investments on the rise?
Yes, the ESG market is already large and more investors are moving towards, and asking for, products that allow for responsible investment. Investors want to invest in companies who are taking ESG responsibility seriously. This has been shown in some studies to not only make good business sense but also lead to more sustainable markets and better outcomes for societies.
Is ESG just a short-term hype or a trend that is going to last?
We feel ESG is going to last. The term ESG was first used in 2005 and investments in ESG now cover over 25% of professionally managed assets around the world. Having more types of ESG products gives more investors the opportunity to invest responsibly, and the market will only grow from where it is now.
How do you foresee the evolution of ESG in the financial industry?
The industry can, with new products, ensure there are more ESG choices available to investors at a fair price. This will allow more investors to have the opportunity to invest responsibly.