Crédit Agricole CIB is working with MSCI to develop a pool of indices for its green offering

Sustainable investments continue to be an area of new initiatives in the structured products market, and a focus for Credit Agricole corporate and investment banking (CACIB). In the second part of an article, SRP speaks to Samy Beji (pictured), global head of structuring and product development, in London, and Mahdi Bouayad, executive director, structuring - quantitative investment strategies, in Paris, about the products in focus and the bank's strategy to be at the forefront of investment and financing developments as we moved towards a green economy.

In reference to the €2bn worth of investments linked to sustainable assets and strategies committed by Credit Agricole, this is the notional issued at the investment bank level, points Beji, adding that sustainable investing has become more relevant to investors.

"The structured products market is a good example of the increased activity and demand," said Beji.

"If you look at the bond market, the green bond category represented 6.5% of the overall activity in Q2 2018, up from 4% in 2017 (2% in 2016)," said Beji. "This shows that the green bond market is eating up market share from traditional bonds slowly but surely, and we see a similar trend in the structured products market."

There are two aspects in the development of sustainable investments worth highlighting, according to Beji. On one hand, the need to standardise terms and definitions around what is green and what is ESG, which has helped the industry to create a framework around green bonds. On the other hand in order to make these investments mainstream and appealing to retail investors, manufacturers need to get involved and grow the offering, as not every dealer out there can issue green bonds.

"[Green bonds] is still a "luxury product," said Beji. "From a structured products perspective, it has been a very interesting development and we have seen how the market continues to evolve. At a product level, the offering was limited to plain vanilla fixed income pay-off but we saw the opportunity to expand the offering and use our structuring capabilities to provide different structures and exposures."

The focus on performance remains an important aspect of sustainable investing because retail and institutional investors seek a return beyond the 'feel good' factor. "It's difficult for an investor to give up a 2% potential return because a bond is green," sayd Beji. "Crédit Agricole CIB's vanilla or structured green bonds have the same funding as any other structure, and investors do not have to pay more to access sustainable investments. If you add the fact that proceeds will do good for society, it becomes a very compelling proposition for investors."

Crédit Agricole CIB's current focus is to grow its 'green' offering in Europe and Asia-Pacific, according to Beji. "Our strategy revolves around the creation of new indices and products targeted at the Nordics, France, and other European markets," he said. "In France, we are taking a fresh approach in the way we develop our green range to meet the AMF's regulatory requirements around the use of mechanisms in indices. We are working very hard to increase our footprint in France because it's a natural market for us, and we have a very comprehensive distribution network we can capitalise on."

To implement that expansion, the French investment bank hired Mahdi Bouayad (right) as a senior member of the quantitative investment strategies' structuring team, in October 2017. Bouayad is responsible for leveraging the bank's derivatives capabilities and green bonds to create a full catalogue of structured products in a green format "from fixed income to equities on the collateral and on the performance side", according to Beji.

"We see a clear demand for clarity and simplicity when it comes to sustainable investments," said Bouayad. "The advantage we have is that we are offering the possibility of invest in any of our structured products but with a sustainable format."

Back in February Crédit Agricole CIB partnered with Milleis Bank (formerly Barclays France) to launch the Classic Autocall 8 Ans - Green Bond, its first structured green note public offering in the French market. The eight-year knock out, protected tracker structure will return the initial investment in full plus 8% per year elapsed if at any of the annual observation dates the Eurostoxx 50 index is at or above the strike level.

The French group also launched in Sweden the first publicly distributed structured placement based on a green bond. The product (Autocall Sverige & Europa nr 3385), which is the first of its kind in the Nordic countries, was hedged by Crédit Agricole CIB and is distributed by Garantum Fondkommission.

"The first generation of index-linked structured products use variations of well-known indices such as the Eurostoxx50 index, as the underlying assets," said Bouayad. "However, as demand grows, banks are looking into other indices to complement their offering."

Crédit Agricole CIB is working with MSCI to develop a pool of indices for its green offering. Most recently, the French bank worked with the index provider to launch the MSCI Europe Select Green 50 5% Decrement Index, which provides exposure to the performance of the top 50 companies in Europe that offer products and services "contributing to an environmentally sustainable economy through efficient use of limited global natural resources", according to Bouayad.

"This new index is the newest addition to Crédit Agricole CIB's offering and makes part of our existing relationship to develop green indices on an exclusive basis," said Bouayad. We wanted to partner with an index provider with long-lasting record because we think this adds value to the offering. We have audited many providers and MSCI is not only heavy on research but also has a very solid ESG data to inform its indices."

Crédit Agricole CIB wants to develop a range that is relevant for investors in each of the markets it covers, according to Beji.

"Developing underlying assets with a local flavour is part of that strategy," said Beji.

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