Eurex announces next generation of ESG derivatives on MSCI indexes

German exchange expands its ESG suite with the launch of five futures based on MSCI’s ESG Enhanced Focus Index family. 

Eurex will expand its environmental social governance (ESG) derivatives suite later this month by launching futures on the MSCI ESG Enhanced Focus Indexes.

The new products come in light of increased demand for sustainable investments and the need for more advanced methods to select ESG investments.

Deutsche Börse’s derivatives arm will support investors seeking higher ESG scores while staying close to the benchmark by using these ESG integration indexes.

Eurex’s sustainable derivatives offering has proved to be increasingly popular with traders, as proved when the derivatives exchange reported an ESG derivatives volumes record in February this year.

The ESG Enhanced Focus versions of the benchmark indexes MSCI World, USA, Emerging Markets, Europe and Japan, are the underlyings for the five new futures. These MSCI indexes intend to maximise exposure to companies with a stronger ESG profile.

“The MSCI ESG Enhanced Focus Indexes seek to maximise 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,” said George Harrington, global head of listed derivatives, OTC and structured Products at MSCI.

The indexes aim to reduce their exposure to carbon dioxide, other greenhouse gases and exposure to potential emissions risk of fossil fuel reserves by 30%. Eurex said that “an integrated optimisation process ensures that a targeted tracking error to the parent index is not exceeded.”

“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. The launch will help deepen market liquidity and provide investors with access to new sustainable indexing strategies,” said Jason Warr, EMEA head of EII markets at BlackRock.

In March last year, Eurex answered buy-side calls for more ESG derivatives with the introduction of MSCI futures. The new contracts are part of the second generation of ESG derivatives linked to indexes that integrate ESG ratings as part of the constituent selection and weighting process.

“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,” said Randolf Roth, member of the Eurex executive board.