Eurex Aims To Expand ESG Futures
Vassilis Vergotis, head of equity & index strategy and product design at Eurex, said the derivatives exchange hopes to expand its range of futures for environmental, social and governance strategies this year.
Vergotis told Markets Media: “This year we hope to expand our segment further with products that cover additional ESG strategies and address the needs for ESG benchmarks outside Europe”
Eurex launched three new futures covering STOXX Europe 600 ESG Exclusions, EURO STOXX 50 Low Carbon and STOXX Europe Climate Impact on 18 February.
The majority of trading activity has been in the STOXX Europe 600 ESG Exclusion contract according to Vergotis.
“The light exclusion feature of the underlying index allows investors to switch to an ESG compliant benchmark at low cost and with low tracking error,” he added. “The adoption rate at the overall segment has been very good with 60% of volume coming from end users such as pension plans and other asset owners.”
Last week Eurex said open interest in the ESG futures has grown to €564m ($639m) since launch.
The future(s) of #ESG: since the launch of our #ESGDerivatives on 18 February, Open Interest has grown to reach half a billion euro of #OpenInterest on 6 June. In total, more than 94,000 contracts have been traded since the launch. https://t.co/AIDNscISxE pic.twitter.com/zMCSHW7xbf
— Eurex (@EurexGroup) June 7, 2019
Five market makers have been actively providing screen prices for all three contracts.
“Market makers were much more active in May with 37% of the volume in the order book (versus 5% in April),” added Vergotis.
In the US, the Commodity Futures Trading Commission has approved the ESG contracts for trading.
“The ESG futures are available in the US and we expect to attract interest as liquidity picks up,” added Vergotis. “Adoption from US asset owners (pension plans and insurers) will depend on their ESG investment strategies and European exposure.”
In February Michael Peters, deputy chief executive of Eurex, told Markets Media: “We see the launch of ESG futures as the start of a new index family and the creation of a new asset class, as we did ten years ago with the launch of dividend related derivatives.”
He continued that STOXX indices are European benchmarks with a strong footprint within the buy-side community so the listed ESG futures have the potential to become European benchmarks in the ESG space.
Peters explained that ESG futures should be highly relevant for the buy side by contributing to performance as well as mitigating unwanted sustainable risks. Asset managers will be able to use the futures to create synthetic positions or to hedge their assets under management in the ESG space.
“Given the growth of ESG assets under management, we are very confident in the growth of the necessary liquidity,” Peters added. “The trend in ESG investing has developed from the niche to the mainstream.”
In April the Global Sustainable Investment Alliance released its biennial Global Sustainable Investment Review 2018, showing that global sustainable investment assets reached $30.7 trillion at the start of last year, a 34% increase from 2016.
The lack of a common language and framework has slowed the growth of responsible investment.
The real estate sector accounts for more than one-quarter of global carbon emissions.
The 100 largest asset owners are responsible for over 35% of all global asset owner capital.
Investors prefer green bonds where available and competitively priced over vanilla equivalents.
Global stock of green bonds could total $1.5 trillion by 2024.