Eurex to launch a new generation of ESG derivatives

Eurex is introducing a new series of futures and options on the EURO STOXX 50 ESG Index, and the DAX 50 ESG Index on 9 November,

Both ESG indices underlying the new derivatives were developed by Deutsche Börse Group’s index and analytics provider Qontigo.

According to Eurex, the new contracts represent the first derivatives based on indices that incorporate ESG scores, going beyond the current generation of ESG-linked derivatives, which primarily employ negative screening strategies.

The EURO STOXX 50 ESG Index is based on the EURO STOXX 50 Index and applies a set of standardised ESG exclusion screens with the aim of reducing reputational and idiosyncratic risks. In addition, 10% of companies with the lowest ESG scores are excluded and are replaced by companies with a higher ESG score from the same Industry Classification Benchmark (ICB) Supersector.

The index also excludes companies that Sustainalytics considers to be non-compliant with the Global Compact Principles. These include those involved in controversial weapons or tobacco production as well as companies that derive revenues from thermal coal extraction, and exploration, or generate power from thermal coal.

The base universe of the DAX 50 ESG Index is the HDAX universe which comprises the joint set of companies included in the DAX, MDAX and TecDAX.

“The EURO STOXX 50 ESG Index and the DAX 50 ESG Index both represent highly liquid solutions for asset owners who are looking for cost-effective ways to integrate sustainable factors in the core of their investments,” said Rodolphe Bocquet, global head of sustainable investment at Qontigo. “These indices are well suited for derivatives and are an important part of the comprehensive Qontigo sustainable investment ecosystem.”

Randolf Roth, member of the executive board of Eurex, added, “Given the current momentum in the ESG space, we believe it is the right time to complement our family of screened products by a staged roll-out of integrated ESG offerings.”

In 2019, Eurex was the first exchange to establish derivatives contracts on ESG versions of the major STOXX European benchmarks. Earlier this year, this was complemented by global regions beyond Europe.

Since its debut last February, volumes have risen sharply. This year total traded notional on the STOXX Europe 600 ESG-X futures and options have already exceeded €20 bn. Currently outstanding contracts amount to almost 100,000.

In general, inflows into sustainable funds have multiplied and Covid-19 has been an impetus as many ESG focused funds have outperformed their mainstream counterparts.