18 Oct 2021


Challenges, successes, new methodologies and products – what’s happening on Eurex EURO STOXX 50® ESG Index Futures and Options?

The launch of a new product is always a good opportunity to look back at a product family as a whole. Christine Heyde, Equity & Index Product Design at Eurex joined us to assess the development of the EURO STOXX 5O® ESG Index Futures and Options in light of the introduction of its weekly and month-end option expiries.

Christine, it’s nearly one year since Eurex launched futures and options on EURO STOXX 5O® ESG indices. How have these products developed?

ESG has, indeed, become one of the most profoundly important growth areas in global finance and we have seen strong increases in the number of traded ESG derivatives contracts. With 22 products on global, European, and regional ESG indices and outstanding contracts worth nearly 5 billion euros at the end of September, we are the global market leader in this area. Our sustainable index solutions cover a broad range of ESG targets and strategies. With the launch of the futures and options on EURO STOXX 50® ESG indices we have established the second generation of sustainability index derivatives that offer an alternative for investors who want to go beyond standard investment exclusions. This sustainable alternative to the flagship EURO STOXX 50® products integrates companies’ ESG scores into the stock selection.

In June the index methodology for these products was updated. What exactly changed and why?

The ESG profile of the EURO STOXX 50 ESG index was enhanced to keep the index aligned with evolving sustainability practices and guidelines from the regulators. Key changes include increasing the number of replaced stocks from 10% to 20% of the benchmark through the removal of ESG score-based laggards and sustainability screen violators. Two new exclusions (companies involved in military contracting and in tobacco distribution) were also introduced. As a result, the ESG profile has been improved and the index enhancement has since been well received by the market.

The newest member of the Eurex ESG product family are the EURO STOXX 50® ESG Weekly and Month-End options? What is special about these products and why have you launched them now?

We have introduced the EURO STOXX 50® ESG Index Options with weekly and month-end expiries as stand-alone products on the EURO STOXX 50® ESG Index. Until now, the shortest maturity for the EURO STOXX 50® ESG Index was one month. However, some clients have also indicated a need for weekly expiries and therefore corresponding products were launched on 18 October. Clients already use the Weeklies with the EURO STOXX 50® Index Options, now they have the possibility to hedge their short-term exposure with the ESG variant as well.

What are your expectations for the entire ESG segment and the corresponding methodologies?

ESG derivatives are playing an important role in the transition towards a more sustainable economy and the development of a common taxonomy. Initiatives like the Sustainable Finance Disclosure Regulation (SFDR) have had a significant impact on the industry encouraging ESG products to become a permanent fixture on the financial market. Listed derivatives are bringing transparency and accessibility to this emerging segment. One ongoing topic is index methodology design considerations. ESG index providers are required to incorporate flexibility in the index design. Eurex has to reflect on how ESG products evolve to increase sustainability while maintaining liquidity and tradability build-up in its derivatives. For the ESG-X index derivatives, for example, we obtain feedback from clients on whether the underlying index is still up to date two and a half years since launch of the futures. It will tell us, for example, whether the treshhods applied for certain exclusions are still relevant, or if additional screens are required. Climate transition will move further to the spotlight and applying fossil fuel-related screens remain important.

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