‘Huge’ Potential for ESG Futures

Shanny Basar
‘Huge’ Potential for ESG Futures

Caterina Caramaschi, global head of equity derivatives at ICE, said environmental, social and governance futures have huge growth potential as the global notional open interest is only approximately $7bn.

Caramaschi told Markets Media the open interest of ESG futures is still small compared to the notional open interest of the parent index futures contracts.

“For example, our MSCI Emerging Market future has around $67bn in notional open interest and the combined notional OI in the Emerging Markets ESG variants is currently less than $1bn, so potential for growth is huge,” she added.

She continued that investors are much more aware of climate, as well as social and governance risks, in their portfolios and a number of institutional investors have committed to achieve net zero investment portfolios by 2050 or sooner. This commitment and increased regulatory pressure to clearly demonstrate how they will manage climate risk in their portfolios paints a very positive future for ESG and climate derivatives according to Caramaschi.

There are close to 40 ESG index futures contracts available, compared to zero just fours years ago said Caramaschi. Investors are currently focussing on climate, but there could be demand for futures on other variants of ESG indices.

She said: “Our job is to equip investors with tools to enable them to manage their ESG and climate risks and identify sustainable investment opportunities.”

New contracts

On February 14 ICE launched four new ESG futures contracts based on the MSCI Climate Paris Aligned Index. Caramaschi said the MSCI Climate PAI indices are designed to address climate change in a holistic way and meet the needs of investors seeking to reduce their exposure to energy transition & physical climate risks and align with a net-zero world.

Joel Stainton, EMEA head of execution, futures and options and OTC clearing at Bank of America, said in a statement: “The Paris aligned goals are a fundamental part of the ESG landscape. We are committed to identifying, developing and supporting ESG solutions for clients, so it is a positive step to see ICE launch these futures.”

The US dollar-denominated futures contracts are designed to help investors align with a net-zero world using a variety of proprietary, key climate metrics and models, including climate value-at-risk, low carbon transition score and companies’ carbon emission reduction targets.

Caramaschi said ICE has been getting a lot of positive feedback from European and North American buy-side clients on the launch and that when the futures went live market makers were quoting on screen in all four contracts during European and US trading hours.

“This is important for the development of the futures contracts as buy-side clients want to see on screen pricing from the outset,” she added. “We also have many banks that are willing to provide liquidity for larger block trades.”

When ICE first looked to offer ESG index futures in 2019, MSCI was the obvious partner as the the leader in the equity index ESG space according to Caramaschi. In addition she said ICE has the largest MSCI index futures franchise in terms of volumes and open interest as the exchange lists the two largest contracts globally – MSCI Emerging Market and MSCI EAFE Index Futures.

ICE started with futures on the MSCI ESG Leaders Indices, then listed futures on the MSCI Climate Change Indices and has now launched futures on the MSCI Climate Paris Aligned Indices.

“If there is demand for more climate and ESG related futures products, then we are more than happy to facilitate these for our clients,” added Caramaschi.

She stressed that ICE is committed to environmental sustainability after investing in environmental markets in 2003.

“With over a decade of investment, we are recognized as a global leader in emissions and renewable energy markets,” said Caramaschi. “We are committed to extend this further into the ESG and Climate Index Futures space.”

Source: Eurex.

Eurex, Deutsche Börse’s derivatives arm, reported that the traded volume of its ESG futures and options was more than €49.7bn in 2021, an increase of more than 131% compared to 2020. Capital open interest of all ESG products grew 202% from €1.6bn in 2020 to reach a record of €4.96bn in 2021.

In 2021 more than 80 members were active in ESG derivatives on Eurex, and 13 existing members started trading ESG derivatives during the year.

Alessandro Romani, Nasdaq

In November 2021 Nasdaq launched options on the OMX Stockholm 30 ESG index, adding to its futures based on the world’s first ESG benchmark index.

Alessandro Romani, head of European derivatives at Nasdaq, said in a statement: “With the success of our ESG index futures contracts as a platform, the addition of options allows us to round out our offering and provide our clients a complete suite of derivative products based on one of the leading ESG indexes in Europe.”


In the exchange-traded fund market, ESG ETFs and ETPs listed globally gathered net inflows of $9.8bn during January 2022, which is lower than the $19.7bn gathered in January 2021, according to ETFGI, an independent research and consultancy firm covering trends in the global ETFs/ETPs ecosystem.

Deborah Fuhr, ETFGI

Total assets invested in ESG ETFs and ETPs decreased by 3.2% from the end of December 2021 to $379bn, which is still the second highest on record. ETFGI said January was the 37th month of consecutive net inflows and ESG ETFs have gathered $151.6bn in net inflows gathered in the past 12 months.

Deborah Fuhr, managing partner, founder and owner of ETFGI, said in a statement: “The S&P 500 decreased by 5.17% in January. Developed markets excluding the US, experienced a loss of 5.33% in January. All countries in developed markets experienced losses, with New Zealand suffering the biggest loss of 14.35%. Emerging markets decreased by 0.94% during January.”

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