Options Trader Optiver sets out an ESG challenge for the markets

Darren Sinden

A lack of transparency and the perception of ‘greenwashing’ have dogged ESG products, however Optiver has a five-point plan to bring ESG directly into the heart of the trading and investment

Lance Braunstein CIO OptionsHouse

One of the world’s leading options market makers, Optiver, has put itself front and centre in the debate about Environmental, Social, and Corporate Governance (ESG), with a call for market participants to do their bit.

We have all become used to seeing industrial, utility and energy companies pledging to reduce their carbon footprints and employers generally have stepped up to the plate to increase diversity and inclusion in the workplace, if not yet within the realms of senior executives.

Optiver wants to take that one stage further and has proposed a five-point plan to bring ESG directly into the heart of the trading and investment.

The proposals include creating ESG products that meet investor demand and which are marketed in a way that brings them to the attention of investors.

Making those products attractive for end-users to trade by minimizing trading costs and to do that by creating “deep liquid order books” and market maker incentives, which will mean that the products are priced competitively.

The creation of a standardised reporting framework for companies, to allow investors to directly compare businesses on their levels of sustainability, and the adoption of a common methodology, which rating agencies can use to assess a businesses ESG rankings.

Optiver CEO Jan Boomaars said “We urge issuers and exchanges to create more harmonization between ESG products and make differences between ESG products clear to the end-investor, so they can make informed decisions about how to incorporate ESG in their investments.”

Those comments were made at a forum hosted by Optiver last week, and moderated by Victor van Hoorn, Executive Director of the European Sustainable Investment Forum.

The panel, which included speakers from the European Commission, European Parliament and the London Stock Exchange, asked questions as to whether the existing capital market structures fit for the green transition, and how can the capital markets play their part in helping to meet the EU’s commitment to becoming climate neutral by 2050.

Alongside the proposals to market ESG investing more efficiently and sustainably in itself, the panel stressed the need for disclosure and in particular the need to make disclosures around ESG issues understandable to retail and private investors

“Retail investors are gradually waking up to these products, we need to support direct retail participation, so (an) emphasis on disclosure will be very important” Said Tatyana Panova, Head of the Capital Markets Union Unit at the European Commission.

Jan Boomaars added “Let’s keep things simple, try to standardize as much as possible at the beginning, and make ESG products as transparent as we can”

Data from the Investment Association which was published by FT Advisor in early November showed that £7.1bln flowed into ESG investments in the UK, during the first 9 months of 2020, with £1.0 billion being pumped into the sector in September alone.

However, overall, ESG funds made up just 3% of total investments. Fund research house Morningstar has estimated the value of ESG investment around the globe reached £930 billion as of Q3 2020.

A lack of transparency and concerns about so-called greenwashing have dogged ESG investments. US asset manager and custodian State Street Global Advisors identified 125 different ESG rating systems in a paper on the ESG data challenge, that it published back in 2019.

Some of Optiver’s challenges to the markets over ESG issues could be quickly and easily addressed, but finding common standards for reporting. disclosures and ratings will take considerably longer you feel, unless there are significant financial incentives attached. Decisions about that are only likely to be made by policymakers and politicians.

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