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Euronext Sets ESG Strategy

Euronext has launched a new environmental, social and governance index and introduced its first ESG future after the pan-European exchange set sustainable finance as one of the pillars of its new strategy last October.

Stéphane Boujnah, group chief executive of Euronext, said in a media briefing this morning that ESG is a component of the new strategy due to growing demand from investors and the opportunity for exchanges  to make a positive impact on society by helping the efficient allocation of capital to ESG projects.

Boujnah said: “There has been a boom in money allocated to ESG and it will continue to grow. European sustainable funds attracted inflows of €30bn ($33.6bn) in the first quarter of this year, despite the Covid-19 sell-off, which was 50% more than in the first quarter of last year.”

He noted that Euronext has a history in ESG as it has listed 51 ESG exchange-traded funds with total assets of €24.5bn, including 18 listings last year and it launched a green bond segment last year.

ESG indices and derivatives

Nicolas Rivard, head of advanced data services at Euronext, said in the briefing: “Demand is accelerating and sales of ESG structured products tripled last year from 2018.”

He continued that investors said they wanted a public liquid benchmark for exposure to the low-carbon transition in the Eurozone so the exchange is launching the Eurozone ESG Large 80 Index.

“The index includes the 80 best-in-class companies from their sector supporting the transition to a low-carbon economy and is powered by the Vigeo Eiris Moody’s Energy Transition framework,” he added. “Importantly the index achieves a 70% reduction in carbon footprint versus the Eurozone benchmark index.”

Futures contracts on the new index launched on June 1, supported by four market makers, and the first trades have been completed.

“They are priced in the same way as standard Euronext derivatives as ESG is the new normal,” said Rivard. “This is the first pillar and it will take time to build liquidity.”

Rivard said the exchange launched the first low carbon index in Europe in 2008, which is tracked by the largest European ESG ETF from BNP Paribas, with €764m in assets under management. The low carbon 100 index is now being aligned with European Union regulation on low-carbon benchmarks and the Paris agreement on climate change.

“The concrete impacts are a 7% year-on year reduction in CO2 emissions, a 1.5°C limit to global temperature rises by 2050 and an exclusion of fossil fuel companies,” he added.

Green bonds

Daryl Byrne, chief executive of Euronext Dublin and head of debt listing, said at the briefing  that the exchange’s green bonds segment was launched in November last year and the number of issuers has grown from 57 to 92.

Byrne added: “We now have 221 green bonds, compared to 148 at launch, including 20 new issues since the Covid-19 crisis.”

In addition to continued growth in green bonds, Byrne expects an increase in ESG bonds including social and sustainability bonds. For example, social bonds have been issued by public authorities to fund their response to the Covid-19 pandemic.

“There are three social bonds & 11 sustainability bonds listed on Euronext,” he added. “We expect additional blue bond issuance.”

Blue bonds raise capital for projects with marine or ocean-based benefits. Byrne continued that Euronext was a contributor to UN Global Compact blue bond reference paper in April this year.

Boujnah added: “We are proud to be the first stock exchange to endorse the UN Global Compact’s nine Ocean Principles. Protecting our oceans and supporting marine conservation will be vital to repairing our ecosystems and bolstering the blue economy.”