ICE looks to clean up its act with the launch of new fixed income ESG indices

ESG, a three letter acronym for Environmental Social and Governance, has been the buzzword-du-jour for financial markets throughout 2020 and seem likely to remain so into 2021 and beyond.

Asset managers have been busy launching new funds and repurposing old vehicles to meet the demand from investors for more ethically surefooted products, whilst rating agencies are actively promoting their own scoring and ranking systems for ESG and sustainability criteria.

The exchanges don’t want to be left out and they see opportunities in creating indices and other products designed to track the performance of ESG investments and assets.

IntercontinentalExchange (ICE) which operates futures exchanges and clearing houses around the world today announced a partnership aimed at doing just that, in cooperation with CTBC Investments, a Taiwanese investment manager that is part of CTBC Financial Holdings which employs 27,000 people worldwide.

The new venture will seek to create a series of ESG indices and ETFs and ICE has launched two new bond indices to set the ball rolling. The first is a 15 year-plus large-cap carbon reduction index and the second a 15 year plus ultra large-cap US corporate ESG index.

The new indices will join the exchanges existing stable of 5000 global fixed income, equity, commodity and currency indices.

For its part, CTBC Investments will launch investable tracking products, such as ETFs to reflect the performance of the ESG indices. Both the indices and proposed ETFs having been recognised by the Taiwanese TAIPEX exchange as being viable benchmarks.

CTBC is Taiwan’s third-largest asset manager and has an established track record in ETF investing and it has become a significant player in the local ETF markets.

ICE, which was founded in 2000, is itself is a fortune 500 company which owns the NYSE, the former IPE and LIFFE exchanges and has operations in Singapore and Abu Dhabi.

Its consolidated Q3 2020 net income was US$390 million, so the new venture is unlikely to make a dramatic difference to the group earnings. However, it does open up a new geography for ICE as well as a new range of products.

The roots of the ICE exchange are to be found in the energy markets which of course are not ESG friendly, however, it is rather telling that just under half of ICE’s Q3 2020 revenues of $1.40 billion was drawn from data and listings services, rather than trading and clearing revenues.

If we are to continue to move towards an ESG focused, low carbon future then ICE will need to leverage the data and listings side of its business further as fossil fuels are eventually phased out,

though no doubt it will also look to introduce ESG and clean energy futures contracts as well.