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Blog Posts — February 15, 2024

DZ BANK to issue certificates on new DAX ESG benchmark 

STOXX has licensed the DAX® 30 ESG index to DZ BANK to issue discount certificates. The products will be distributed starting February 15 and will also be listed on the Frankfurt Stock Exchange (FSE) in April.

The DAX 30 ESG is a benchmark of Germany’s large-caps with the highest ESG scores. Index selection starts with the universe of the HDAX®[1], which consists of roughly 100 stocks. Companies that fail the ISS ESG Norms Based Screening assessment[2] are ineligible for inclusion. Exclusion filters are also applied for involvement in Controversial Weapons, Tobacco, Coal, Unconventional Oil & Gas, Civilian Firearms, Nuclear Power and Military Equipment, as determined by ISS ESG.

From the remaining companies, the largest 60 by free-float market capitalization are pre-selected. Thereafter, the 30 securities with the highest ESG Performance Score from the ISS ESG Corporate Rating are finally included in the DAX 30 ESG.

ISS’s ESG Corporate Rating system allows investors to evaluate companies’ ESG-related risks and factors, and their impact along their value chain. The ESG Performance Score enables cross-industry comparisons using a standardized best-in-class threshold.

“The new index combines Germany as an investment region with the consideration of sustainability aspects,” said Kim Yvette Remmert, Responsible Product Manager at DZ BANK. “This will enable us to close an existing gap in the product range with an attractive underlying asset, especially for underwritten products.” 

Certificates are products issued by banks or other firms whose return depends on the performance of an underlying asset such as an index or stock. DZ BANK, one of Germany’s largest, issued its first investment product with an ESG underlying in April 2021. 

recent article on this blog explored the performance of the DAX 30 ESG.

Decrement version

DZ BANK is offering as well certificates linked to the idDAX® 30 ESG Decrement 4.0%. The underlying replicates the performance of the DAX 30 ESG net return index assuming a constant markdown of 4% per annum. Decrement indices are popular with structured product issuers as a tool to hedge their dividend risk. 

Growth of responsible investing 

“This new ISS ESG-supported version of DAX complements our existing range of ESG versions linked to the DAX,” said Serkan Batir, Managing Director at STOXX. “It meets the increased demand for bespoke indexing on sustainability.”

As demand for sustainable investing in the German market has grown strongly in recent years[3], STOXX has introduced several ESG alternatives to the benchmark DAX®. While the indices differ in scope and approach, they have the transparent methodologies and liquidity considerations that are common to all DAX indices, and use the best available data for each case.

[1] The HDAX groups all equities that belong to either the DAX, MDAX® or TecDAX®  indices.

[2] Companies are assessed against their adherence to international norms on human rights, labor standards, environmental protection and anti-corruption established in the UN Global Compact and the OECD Guidelines. Companies identified as ‘Red’ are excluded. ISS ESG identifies companies as ‘Red’ if they fail to respect established norms and the issue remains unaddressed.

[3] See, for example, ETF Stream, “Germany asserts itself as ETF powerhouse following retail investment boom,” January 11, 2022.