Q1 2022 ESG Update

  • 22 Apr 2022
  • By CME Group

E-mini S&P 500 ESG futures continue to gain ground

With interest and participation in sustainable investments continuing to rise, E-mini S&P 500 ESG futures experienced record volume in March. On March 14, 18,551 contracts were traded ($3.4B notional). Q1 2022 average daily volume (ADV) was 2,435, a 140% increase to Q1 2021, while open interest averaged 13.1K, a 64% increase to Q1 2021.

After launching in May 2021, E-mini S&P Europe 350 ESG futures saw nearly 3.1K contracts traded YTD. The futures are cash-settled to the S&P Europe 350 ESG index, a Pan-European index covering developed markets across more than 15 countries. The index is considered compliant with Article 8 of the Sustainable Finance Disclosure Regulation and uses the same methodology as the S&P 500 ESG index.

Source: CME Group, Data as of March 24, 2022

Newly expanded voluntary carbon offset futures

On March 7, CME Group launched Core Global Emissions Offset futures. This new contract builds on the success of Global Emissions Offset (GEO) futures and Nature-Based Global Emissions (N-GEO) futures launched in 2021.

These three futures products are structured similarly to provide traders familiarity across the carbon offsets suite; however, each contract boasts unique underlying specifications enabling traders to focus on specific aspects such as approved registries, type of underlying project, and vintage years.

These products have received high interest from traders and volumes are growing significantly in 2022:

  • The number of firms trading GEO and N-GEO in the first two months of 2022 has surpassed the number of participants in all of 2021.
  • Combined GEO and N-GEO futures have traded over 89K contracts, equating to over 89M carbon offsets.
  • Record volumes and open interest are continually being broken. The most recent single-day records for volume and open interest were set on March 16 with combined GEO and N-GEO volumes equaling 4,718 contracts and open interest of 19,761.
  • To date, ~73% of volume is traded in N-GEO futures and 27% is in from GEO. Similarly, open interest is split 76% N-GEO to 24% GEO.
  • Six unique firms have traded over 150 lots since C-GEO futures launched.

Source: CME Group, Data as of April 5, 2022

Nasdaq Veles California Water Index futures

Since launch, almost 1,500 contracts have traded, allowing market participants to hedge the price risk on nearly 15,000 acre-feet, or 4.8B gallons, of water.

Incorporating ESG practices into FX: What factors are at play?

A growing number of investors and funds now incorporate ESG into their investing approach. Ratings companies, such as MSCI and Sustainalytics, provide over 4,000 corporate ESG ratings. The guidance and influence that regulators and policy makers have begun to exert, as well as the interest by companies and investors to incorporate ESG factors in their trading and investment activity, is likely to mean that ESG and financial markets will only become more intertwined and important over the next few years.

Having a clear understanding of where ESG can be incorporated into FX markets and how it will impact the FX business is important not only to help mitigate any challenges, but also to take advantage of any opportunities for the FX industry.

This article examines several areas where ESG factors come into play with FX markets, and how they will continue to evolve over time.

Batteries Fully Charged – Cobalt and Lithium Demand on the Rise

Lithium futures prices have tripled since May 2021. With EV demand set to grow, we take a closer look at the market for key battery metals.

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