Starting today, investors can trade futures on the STOXX® USA 500 ESG-X Index, a benchmark for US equities that incorporates standard responsible exclusions based on feedback from European asset owners. Qontigo’s global index provider STOXX Ltd. has licensed the index to Eurex as an underlying for the listed futures.
The futures are the first listed derivatives covering the US market that include a screening for thermal-coal mining and coal-fired power plants, key topics in the management of climate-related risks.
The new contracts tap growing demand for sustainable investment products, as shown by strong trading in STOXX® Europe 600 ESG-X Index (FSEG) futures. They also mark the internationalization of Eurex’s ESG derivatives offering and are the first listed futures to track a STOXX index with a US focus.
Popular exclusions among investors
The STOXX ESG-X Indices are ESG-compliant versions of established STOXX benchmarks that aim to limit market and reputational risks while keeping a similar risk-return profile to the respective benchmark. They include product-involvement exclusions for controversial weapons, tobacco and thermal coal; as well as a norm-based screening for United Nations Global Compact principles.
STOXX cooperates with leading data provider Sustainalytics for the screenings.
Avoiding exposure to sustainability liabilities
ESG derivatives have gained traction among investors and traders who must comply with responsible policies, helping the implementation of ESG strategies, adding to liquidity and lowering trading costs. Until recently, investors had to resort to traditional market-capitalization-weighted index futures to meet their tactical and management needs in ESG portfolios, creating positioning mismatches and breaching responsible policies.
The existing products already enjoy ample liquidity. Trading in futures on the STOXX Europe 600 ESG-X Index was the busiest on record in December. Over 183,000 FSEG contracts exchanged hands on Eurex during that month, for a notional value of 5.7 billion euros, the most on both counts for any month since launch in February 2019.
More than half of the flow in ESG derivatives has come from end clients such as asset owners. The contracts have been traded by more than 20 exchange participants.
For information on derivatives tracking STOXX’s ESG & Low Carbon indices, please click here. Background on Section 871(m) of the US Internal Revenue Code and relevant Treasury Regulations is available here.
Follow us in coming weeks and months as we report on this and new chapters to come in the ESG investment landscape.