Morgan Stanley has licensed the new iStoxx Europe ESG Climate Awareness Select 50 Index for the issuance of structured products. 'We are seeing a noticeable shift towards climate-friendly investments from our clients,' said Jerome Bedouet, head of equity derivative sales for Europe, Middle East (Emea) at Morgan Stanley, adding that the index will enable retail investors to access 'this investment theme in a liquid and option-friendly format'.
The new index combines sustainability criteria with factor investing via high dividend yield and low volatility. The respective environmental, social, governance (ESG) and climate data for the index is compiled by CDP (climate) and Sustainalytics (ESG) in what is the first time the index provider combines data sources from these two research outlets in a single index.
The iStoxx Europe ESG Climate Awareness Select 50 Index is designed to combine ESG and climate considerations in a single basket, addressing a growing demand from investors to incorporate climate change awareness within a broader ESG factor investment, according to Inderpal Gujral (pictured), head of product at Stoxx.
"Strategies combining ESG and smart beta are gaining ground as more asset owners demand responsible investments and the rise of factor investing continues unabated," said Gujral. "This new index is particularly attractive for issuers of structured products, as the high dividend yield/low volatility of the underlying lowers the price of the option used to construct the product. The lower the option price, the higher the participation of the structured product buyer in the underlying's return. This pricing optimization has made a success of the Stoxx Select suite of indices among structured products issuers.'
The index tracks the performance of 50 climate-conscious companies and is composed of a balanced universe comprising liquid stocks with low volatility and high dividend yield. The components are selected from a pool of companies that have considered the implications of climate change on their businesses, are implementing initiatives to further their use of renewable energy and are classed as leading companies with regard to ESG criteria.
More than a quarter of the world's US$88 trillion assets under management were invested according to ESG principles as of 2017, according to Gujral. "Certainly, at Stoxx, we see a strong demand from investors and asset owners for innovative ideas that include ESG principles."
More than 20 iStoxx factor indices are used widely in the global structured products market. SRP data shows that there 607 products featuring iStoxx underlyings of which 445 structures are still live, mainly in France (220), Belgium (87), and Sweden (23). The Euro iStoxx Equal Weight Constant 50 index, iStoxx Europe Next Dividend Low Risk 50 index, and Euro iStoxx 70 Equal Weight Decrement 5% index are the most featured indices of this range.
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