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.
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:
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.
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.
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