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Blog Posts — April 5, 2022

Q&A with SILEX: Ocean Care indices as targeted sustainability strategy for structured products

The EURO iSTOXX® Ocean Care 40, co-designed by Qontigo and SILEX, has won the 2022 Index of the Year award from Structured Retail Products. The thematic index tracks companies that are taking initiative towards efficient water management and that have strong environmental policies.

Since inception in 2019, the Ocean Care strategy has seen strong customer demand as underlying for structured products, and Last November Qontigo introduced the iSTOXX® USA Ocean Care 40 Index. The new index follows the same methodology of its Europe-focused predecessor on the American market, selecting large and liquid US stocks with the highest Ocean Care key performance indicators (KPI) score. This rating results from the average score in 12 KPIs that aim to assess companies’ efforts to protect our waters and the environment.

An article published close to the launch of the EURO iSTOXX Ocean Care 40 index explained its methodology in more detail. 

To find out more about the background and goals of the two indices, we caught up with Céline Jaquelin, responsible for French Institutional Clients at SILEX, a provider of specialized investment solutions. Céline also oversees her company’s sustainability offerings. SILEX is an independent investment group that supports institutional investors and wealth managers at every stage of the investment decision. The approach combines human conviction and technology to offer tailor-made solutions in all asset classes.  

Celine, what’s the goal and what the drivers behind the Ocean Care strategy?

“Today, we are witnessing a significant change in investor behavior, with strong demand for ESG products. This rapid growth is explained by the evolution of the market at several levels. At the first level, there is more awareness on ESG topics. Secondly, we are seeing a stronger political drive, with important initiatives around sustainability in Europe and the US. Thirdly, there is also action at the regulatory level, with increased regulation and new legal frameworks, such as the EU Taxonomy.

“We are convinced that the financial industry can actively participate by informing investors and creating new tools to drive financial flows into sustainable investments. 

“One of the ways to do this is to focus our commitment on targeted and easily identifiable thematic strategies. The Ocean Care index range was created with this in mind, and to get involved in a topic that is close to us and that resonates with everyone. 

“Oceans play a fundamental role in human life, offering food and water resources, as well as oxygen; they are at the heart of the global warming challenge and are a formidable vector to promote more responsible investments.

“Today, there are not many indices integrating a targeted thematic sustainability strategy like this one, that can be used for structuring investment products. It is important for SILEX to offer innovative investment solutions that respond to growing demand and that integrate non-financial risks and opportunities alongside traditional risk/return frameworks.

“SILEX aims to provide solutions that allow transparent competition and a wide range of investment options. We are proud to be an independent actor sponsoring an index family such as Ocean Care, that has met strong interest.” 

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And what are the benefits of approaching such a strategy through an index-based portfolio?

“We know that structured products are increasingly used to diversify investment portfolios, together with traditional asset-management solutions. They are also employed both for tactical allocation or more targeted strategies.

“Indices, as the base for structured products, help us achieve these objectives. In particular, the Ocean Care indices display the characteristics that investors need to build resilient structured products — namely, a high correlation to the benchmark and liquidity filters that ensure the robustness of the methodology. The index is open to many issuers, offering multiple investment opportunities for investors, particularly in the green bond format.

“We also have the flexibility with the Euro iSTOXX Ocean Care 40 and the iSTOXX USA Ocean Care to add a synthetic dividend, while maintaining a high correlation to the benchmark, making a difference for investors looking for optimization.”  

Thematic strategies such as the Ocean Care indices have seen strong demand from investors pursuing responsible principles. How do you see this segment of the thematics space evolving in coming years?

“We have moved from exclusions-based approaches to more targeted strategies such as best-in-class. Tomorrow we’ll likely see more dynamic requirements on the sustainability profile of stocks. This trend will be supported by regulators; and the standardization and increased reliability of ESG data. In the future, when sustainability issues will probably be standard, we expect that indices will incorporate more ambitious quantitative criteria. Today, indices such as the Ocean Care are leading the way in this trend.

“As non-financial information becomes increasingly of higher quality, and companies are transformed, we have more scope for sustainable topics. We think the demand for sustainable thematic investing should accelerate strongly in the coming years, as a result of increased responsible awareness, better ESG data quality, and new players in the sustainability segment of financial services.  

“Moreover, the evolution in investor expectations around sustainability will also pave the way for new ‘conviction’ indices focused, for example, on decarbonization or high-impact transition drivers. I think we are at the beginning of the road in this evolution of the structured-products industry, and the journey will require education, information and data clarity. At SILEX, we are actively working to anticipate these needs.” 

Why did you decide to launch a US version of the index?

“After the success of the EURO iSTOXX Ocean Care 40 index, investors asked us for options to diversify their investments to the US market. The landscape for this type of indices covering the US market is poor. We think there are not too many alternatives on US stocks to have an ESG index that is close to the benchmark and that allows us to efficiently do structured products.”

Finally, how do you work together with an index provider like Qontigo to design a passive strategy such as this one?

“We work with many banks, which can license this index to create their own structured products. With the Ocean Care indices, we can take a unique strategy to these issuers, and the end client has the freedom to compare and choose within various issued products the one that best fits their needs or is tailored to their objective. 

“Working with Qontigo has allowed us to have an index that can be customized to offer different versions.1

“Of particular note is that the Ocean Care strategy is easy to understand, has a clear construction methodology, and has been done with a well-known provider. 

“It was important for us to work with a trusted index provider that has conviction about ESG integration and that allows us to create our custom strategy towards ocean preservation. 

“Finally, Qontigo’s open architecture allowed us to build Ocean Score with the use of Sustainalytics’ ESG data and to meet the reliability standards currently required by investors.”

1 Editor’s note: the Euro iSTOXX Ocean Care 40 and the iSTOXX USA Ocean Care indices also come in 3.5% and 5% decrement versions.