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02 Mar 2023

Eurex Exchange

Sustainability and the Role of Derivatives - a view from the Nordics

At our Stockholm ESG Expert Roundtable, ahead of the Derivatives Forum Frankfurt, Eurex caught up with Anette Andersson, Senior Sustainability Investment Specialist at SEB Wealth Management on the use of derivatives in the context of sustainable finance and her views on the ESG methodologies.


How has your approach to ESG evolved?

I've been working in this space for 15 years - I've moved from being a tree hugger to a value creator! It's a big change. And I think it's maturing. Initially, the only major thing that we did was we just exclude companies or sectors that were deemed unsustainable. However, that was more from an ethical or moral standpoint of view, not so much in terms of what was sustainable.

Today the market has evolved into what we call sustainable investment, where we actually look in detail at the companies, how they operate, what products and services they actually offer, and whether there is something there that is hurting or helping the environment and us as human beings.

So it has become a lot more sophisticated. But it's evolved into a position where the industry can change companies for the better and encourage them to take sustainability into account in a more structured way.

The development of the UN Sustainable Development Goals in 2015, together with the Paris Agreement, was a major step forward because, up until that point, everything about sustainability was thoughts and feelings – it was very fluffy and really hard to get your head around.

And suddenly, when the development goals and the Paris agreement came in, we had something we could cling to. The Paris Agreement meant that you could do the calculations and measure where you needed to go and where you are today. The SDGs are slightly different because they were not meant for the private sector. They were developed for countries or states, but we embraced them as soon as they came.

It's hard for us to embrace all of them, but basically, every listed company of any size always has some sort of reference to the goals. Either they pick the specific ones that they think are most relevant or material for them, or some companies say that they can't choose which ones are most important, so they just aim for all of them.

Do you currently use derivatives in the context of sustainable finance?

Yes and no. We do use derivatives because they offer a good way of handling large in and outflows and allow us to be exposed to different markets without having to actually go into the actual underlying investments.

Obviously, it's always an issue with liquidity in the market, but that is becoming better, and there are more sustainable derivatives coming out. I think that now, with the new regulation, we are allowed to use derivatives as part of our sustainable investments, which hasn't been the case before.

So maybe there will be an even larger market for it because you can actually use the derivatives to reach the sustainability goal of the investment, not just use it for liquidity purposes or be in the market.

Eurex has three core approaches: exclusion, integration and optimizing carbon transition scoring. Which of those three is most relevant for you?

That's a really hard question. Since they're interlinked, it's kind of difficult to say, but obviously, we've made the commitment to be a net zero greenhouse gas emission by 2040. So that's something that we have to work on quite hard.

And we've taken the low-hanging fruit by excluding all extraction of fossil fuel and power generation. And now we have to work with all the other investments to make sure that they are on this path. So it's done all in combination, I would say. You've got the exclusions. But you also got the integration where obviously, you don't want to have the terrible companies that are not on this path. And we need to engage with the ones that are not really on their own trajectory to ensure that they will.

We have decided to allow companies who are in transition who might or should be excluded normally. But we take that decision when a company has science-based targets and there's a readiness and a willingness to change. We engage with the company to make sure that they actually are on track and keep a very close eye on the trajectory.

With these companies, we make sure at least annually that they are on track. And if they aren't, why aren't they? And then, if the company says, "No, we won't be able to make it," or whatever, then we can just decide to exclude them when the time's right making sure that we protect the performance of our clients' money.
 

Join the Derivatives Forum Frankfurt on 22-23 March to hear more from Anette and her fellow panelists

  • Kristin Wallander, Senior Sustainability Analyst, Swedbank Robur
  • Magnus Linder, Portfolio Optimization & Derivatives Trading, Swedbank Robur
  • Antonio Celeste, Director, Sustainability Product Management, Qontigo


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