SG: Providers and investors evolve along with ESG market

Société Générale (SG) is one of the leading manufacturers of structured products offering exposure to ESG as part of a full Sustainable and Positive Impact Finance framework. The French lender began its ESG activities in the structured products market in 2014 and continues to be at the forefront of developments at a product and organisational level.

Isabelle Millat (pictured), the bank's head of sustainable investment solutions, discusses how the ESG structured products market is evolving.  

“In 2019, our products linked to ESG indices sold very well in France and beyond,” she says. “We have more than doubled last year’s asset under management on our proprietary ESG indices.”

The bank is capitalising on its comprehensive flagship ESG index offering with strong customisation capabilities. For example, one client that was trading a significant amount of autocalls linked to European ESG indices wanted to diversify across other geographies.

“We were able to deliver timely a similar bespoke strategy with a two-third weight on European stocks and on-third on US stocks, selected by their ESG credentials,” says Millat, adding that the bank has also expanded the geographical scope of its offering to the Asia Pacific region, more specifically to Japan.

We work with carefully selected partners involved in reforestation projects that have maximum environmental and social impact

“Our ESG indices and Positive Impact notes are also expanding their footprint in other markets. This shows that this is not just a European trend, but a global one, and we want to capitalise on our franchise in Europe,” she says.

In 2019, it introduced a positive contribution concept at a product level, which supports reforestation projects.

“We work with carefully selected partners involved in reforestation projects that have maximum environmental and social impact,” says Millat. “We also continued issuing structured products with a charitable feature, which are part of the same approach towards positive investments - SG donates an amount based on the proceeds raised by the sale of such products to selected charitable organisations.”

In 2018, the bank rolled out this product range in its private bank, which was expanded in 2019 to its external distribution network. To date, it has donated over €1 million under this initiative, according to Millat.

Short-term goals

SG’s goal is to become a “one-stop-shop for everything ESG” as well as cover different financial requirements and ESG factors, and adapt its offering to local regulatory guidelines to build a full catalogue of investment solutions.

“Because we’re building this comprehensive offering, our priority is to spend time with our clients to explain how each solution works,” says Millat. “Two of the main pillars of our approach to ESG are customisation and education but we also want to be at the forefront of innovation. It’s not enough having a catalogue of products; we want to have a collaborative approach with investors and listen to their needs. We can leverage our structuring capabilities to deliver tailored solutions so that new trends around underlyings and payoffs can be captured, and clients can capitalise on our market knowledge in ESG-minded solutions.

Lack of clarity

As the industry and regulators continues to discuss the application of ESG labels for structured products, such as the quality standard for sustainable and socially responsible financial products introduced by Febelfin, the Belgian federation of the financial sector, there is still confusion among investors as of what makes a product ESG – the bond, the underlying or the use of the proceeds.

Being ‘green’ is not enough, you need at least a degree of non-negative social impact

“For us, a product linked to an underlying with significant ESG filters - not just a limited set of exclusions - is an ESG or sustainable product,” says Millat. "We also consider it a sustainable solution if the wrapper is a Positive Impact note ie SG commits to hold on its balance sheet an amount in Positive Impact Finance loans equivalent to the amount invested in the note. A combination of both will also be an ESG or sustainable product under the SG framework.”

Despite the need to clarify ESG standards, there is an ongoing process of continuous improvement in this segment, according to Millat.

“Parts of it that are being validated with auditors as we grow and expand the offering,” she says. “We have a set of standard definitions, but we also carefully watch new ESG regulations, and look for external validation on any changes we introduce to our products and indices.”

As a product manufacturer, SG remains focused on ESG and sustainability as a holistic concept.

“Being ‘green’ is not enough, you need at least a degree of non-negative social impact,” says Millat. “We see this trend with the granularity on data and the products being offered.”

According to Millat, the green element is and remains a key driver in ESG solutions. "But investors are now also looking beyond climate change or the environment in general and seeking solutions that include the social and governance elements too," she says.