SG (part 2): Structured products are very efficient way to deliver ESG-themed investments because of their USP

What do ESG products offer in a context where the search for yield remains a priority for many investors?

Isabelle Millat: SG has a longstanding and top-ranked ESG research team. A basket of their 10% best scores generates a 29% outperformance over the past seven years against the European benchmark. This live track provides empirical evidence that when ESG indices are built on financially material ESG criteria, they deliver value.

If you look at the structured products market, performance becomes more complex to assess because it is not just about tracking an index - you have barriers, coupons, capital protection and other elements that come into play. Combining ESG and financial parameters in the index selection is therefore essential. The sheer amount of ESG structured products being traded as well as the number of new players in this space prove that these solutions are competitive: otherwise, they would remain niche.

New issuers and distributors are entering the ESG structured products space. What is SG’s market edge in an increasingly competitive segment of the market?

Isabelle Millat: It takes time to build a quality offering and we want to stress that our offering goes through very strict guidelines around the selection of indices or structures. With Positive Impact Finance, which SG pioneered with the Financial Initiative of United Nations’ Environment Program, we have been at the forefront of developments in sustainable finance and investing. We have also adopted a stringent approach and set up around our ESG indices. Because of our long track-record, with initial ESG-themed indices dating back to 2007, we can capitalise on the breadth of solutions we offer.

The vast majority of ESG structured products trading is done with retail investors or small institutional investors

Our existing index franchise, SGI (Société Générale Indices) is a key asset to build our presence and product offering. We don’t see ESG as a silo. To be successful in this space, you must draw the knowledge and capabilities of different teams. Our ESG index business is a good example of the level of collaboration SG has around ESG: our offering benefits from our research, as well as from our equity derivatives structuring and financial expertise, and from our index platform’s unparalleled capabilities to support innovation and customisation.

Would you say ESG structured products are now mainstream?

Isabelle Millat: The vast majority of ESG structured products trading is done with retail investors or small institutional investors. If you look at the ESG market globally, 70% of it is still driven by large institutional investors, and not all that goes through banks’ products. Structured products are positioning themselves in this space as a way to access custom solutions that provide ESG exposure with specific financial features, such as capital protection at maturity, or competitive coupon levels. Structured products can be a very efficient way to deliver ESG-themed investments because they have a unique selling point.

For the last four years, the vast majority of ESG structured products were purchased by retail investors, and we think this will continue. One of our goals is to put ESG within reach of all types of investors. We don’t want to split the pie into more pieces but rather to grow it. Institutional investors and asset managers have been pioneers in ESG investing. They created great awareness and products over the past couple decades. Now we can benefit from this experience to also offer custom solutions, that appeal to new categories of investors.

What are your plans around ESG structured products going forward?

Isabelle Millat: Growing outside of Europe is a target for us and we have already been active in several markets outside Europe, such as Japan or the US. Although we still see some of the more advanced Northern European markets ‘leading the charge,’ we’re always looking to serve all markets and respond to demand and new opportunities – we have traded several ESG products in Italy and Portugal, for example. We think this will continue as investors in all European markets become more aware and want to access a wider offering. It is only a matter of time before other regions follow suit.

We plan to expand our range of indices with new thematic strategies and continue innovating with Positive Impact notes, to incorporate new geographies and themes. We will introduce new quality checks during the product design stage to meet numerous new ESG regulatory requirements, and to bring more value to investors.

SG appears as the issuer of 160 live structured products with a combined sales volume of some US$1.9 billion, according to SRP data.