05.19.2021

Eurex Offers Next Generation ESG Derivatives

05.19.2021
Shanny Basar
ESG Matters in Fixed Income
  • From pure exclusion of companies to integrating ESG scores and carbon metrics
  • Launch of five futures on MSCI’s ESG Enhanced Focus Index family

As demand for sustainable investments has increased, so has the need for more advanced methods to select ESG investments. From 31 May, Eurex will expand its globally leading ESG derivatives suite by including futures on the MSCI ESG Enhanced Focus Indexes. By using these ESG integration indexes, Deutsche Börse’s derivatives arm is supporting investors seeking higher ESG scores while at the same time staying close to the benchmark.

The underlyings for the five new futures are the ESG Enhanced Focus versions of the benchmark indexes MSCI World, USA, Emerging Markets, Europe, and Japan. These MSCI ESG Enhanced Focus Indexes aim to maximize exposure to companies with a stronger ESG profile. In parallel, the indexes intend to reduce their exposure to carbon dioxide and other greenhouse gases, as well as exposure to potential emissions risk of fossil fuel reserves by 30 percent. An integrated optimization process ensures that a targeted tracking error to the parent index is not exceeded.

George Harrington, Global Head of Listed Derivatives, OTC and Structured Products at MSCI: “The MSCI ESG Enhanced Focus Indexes seek to maximize their ESG profile and reduce carbon exposure while maintaining risk and return characteristics similar to the underlying parent index. The launch of these futures significantly grows the ecosystem that uses the MSCI ESG Enhanced Focus suite.”

Jason Warr, EMEA Head of EII Markets at BlackRock said: “As sustainability becomes the new standard for investing, the launch of Eurex Futures on the MSCI ESG Enhanced Focus Index range is another critical milestone in the development of the ETF trading ecosystem. This launch will help deepen market liquidity and provide investors with access to new sustainable indexing strategies.”

Randolf Roth, Member of the Eurex Executive Board: “More advanced methods to select ESG investments are driving us to the next phase of ESG derivatives. We are already seeing this in the increasing demand for more sophisticated ESG index models in the ETF markets and hear similar requests from other active investment managers.”

The new contracts add to the second generation of ESG derivatives that are linked to indexes that integrate ESG ratings as part of the constituent selection and weighting process. In a first step, in March 2020, Eurex introduced futures on MSCI ESG Screened Indexes covering USA, World, EM, EAFE, and Japan. These indexes exclude companies not in compliance with the United Nations Global Compact principles or predefined ESG screening criteria.

With 136 MSCI futures and 22 MSCI options covering emerging and developed markets, Eurex is the exchange with the most comprehensive suite of global MSCI derivatives available across all time zones. Measured in outstanding contracts Eurex holds a global market share of over 52 percent. Currently, outstanding contracts amount to almost 129 billion EUR.

Source: Eurex

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