The new Esma guidelines that applies to products with ESG terminology and ESG-related language in their names and marketing materials, regardless of their classification under the Sustainable Finance Disclosure Regulation (SFDR) is impacting buy-side and sell-side providers, as well as index providers.

Since the new guidelines came into effect in November 2024, STOXX has been working with clients as the methodology of some of the indices affected had to be updated with a number of indices being renamed altogether to align them with the Esma guidelines.

There is a need to balance complying with the guidelines while also avoiding confusion for distributors and investors - Armelle Loeb 

This is leading to discussions with large clients about the implications, such as potential trading and hedging costs, according to Armelle Loeb (pictured), head of Emea sell-side Index & ESG sales at STOXX.

“There is a need to balance complying with the guidelines while also avoiding confusion for distributors and investors who are now used to seeing certain ESG terminology,” she said. “The focus currently is on managing the implementation of the Esma guidelines and the impact on our index inventory.

“We are spending a lot of time discussing with clients whether to launch new indices that clone existing ones with different names, or to simply update the methodologies of the existing indices to comply with the new guidelines,” she said.

Loeb noted that the process over the last few months has been very time-consuming, as the index provider had to carefully evaluate the turnover, performance impact and other factors for each index affected by the new guidelines.

As a major priority this challenge has left little bandwidth to focus on developing new initiatives or products,” said Loeb.

Despite the focus on resolving this issue and a shift in focus from investors STOXX has not seen a decrease in demand for ESG underlyings and the decrement overlay with or without ESG.

There are parallels between the current ESG market and the early days of ETFs - Axel Lomholt

Earlier this year, Axel Lomholt (below right), CEO of STOXX and chairman of the STOXX Management Board, told SRP that institutional investors such as pension funds are shifting their attention towards more customised and bespoke solutions as they seek to incorporate ESG and climate-related factors into their portfolios.

Lomholt noted that the discussion has evolved and there is a need to separate ESG and climate, as climate risk is a unique and complex conversation that requires a different approach.

“The structured products market has also seen an evolution of ESG products, with different ways to deliver this thematic (green bond, ESG underlyings, positive impact),” he said.

Lomholt believes that the lack of clarity from regulators and cumbersome guidelines such as the SFDR regulation in Europe has caused division among market participants.

“There are parallels between the current ESG market and the early days of ETFs,” said Lomholt. “A consolidation phase is now occurring. Challenges in defining ESG and the technical complexity involved in building climate-related portfolios remain, but AI could play a role in addressing these challenges.”

The index provider’s main ESG underlying in the structured products market is the Stoxx Global ESG Leaders Select 50 EUR Index 38 live products/US$2.2 billion); followed by the Euro Stoxx 50 ESG Index (86 live products/ US$2.23 billion); the Stoxx Europe ESG Leaders Select 30 EUR Index (187 live products/US$1.7 billion).

On the decrement side, STOXX also has several indices among the most featured in structured products including the Euro iStoxx 70 Equal Weight Decrement 5% index (62 products/US$1.1 billion); the Euro iStoxx Ocean Care 40 Decrement 5% Index (28 products/US$660.38m); and the iStoxx Europe 600 Basic Resources GR Decrement 50 Index (58 products/US$252.5m).

STOXX’s thematic offering in the structured products market include the iStoxx Europe Demography 50 index (40 products/US$1.1 billion); the iStoxx AI Global Artificial Intelligence High Dividend 30 Index (eight products/US$73.20m); and the iStoxx Global Cities of Tomorrow Select 30 index (seven products/US$82.72m), among others.

This article was first published in the SRP Index Report 2025: ESG, Thematics & Decrement Indices.

Click in the link to download the report.

Do you have a confidential story, tip or comment you’d like to share? Contact Us | SRP (structuredretailproducts.com)