The index, which marked STOXX’s entry into the digital assets space, has been developed in partnership with crypto-financial services provider Bitcoin Suisse. It aims to track a diversified and high-quality basket of assets, utilizing crypto-native metrics to select those that serve as a reflection of the crypto universe today.

Changing backdrop

More institutions are turning to digital assets for strategic objectives such as portfolio diversification, and as an enhanced ecosystem and clearer regulation make market fundamentals more attractive to a larger breed of investors. After a bout of market volatility in 2022, asset prices recovered in 2023, and the crypto market is now valued at USD 2.5 trillion^[1].

“Investors are clearly allocating significantly more to alternative asset classes to diversify their portfolios,” said Axel Lomholt, General Manager at STOXX. “That’s why we are moving into an investment segment that’s increasingly gaining a foothold in portfolios. With Bitcoin Suisse, we do this with an established partner and with an index methodology designed to meet the robustness needs of today’s investors.”

Selection process

Assets in the STOXX Digital Asset Blue Chip X are derived from the Bitcoin Suisse Index Reference Classification List (xRCL) and must be eligible for the FSE’s Xetra venue. Only assets in the following five sectors from the Bitcoin Suisse Global Crypto Taxonomy (GCT) are currently available for selection: Cryptocurrencies, General Purpose Smart Contract Platforms, Decentralized Finance (DeFi), Utility and Culture.^[2] Selection is based on a multi-step procedure that seeks to identify the strongest and most representative assets in each eligible sector.

A blue-chip focus means the new index does not just select the largest crypto assets by market capitalization, as is customary with other indices, but instead considers crypto-native metrics including the scope of adoption, the size of the developer community, the fees paid by users and the age of the protocol. This, together with robust exchange-based pricing, ensures the investable tokens present quality standards that are acceptable to a larger pool of investors.

A market capitalization weighting scheme with a cap of 30% limits exposure to dominant tokens — such as Bitcoin and Ethereum currently — while keeping the strategy representative of the underlying market. Weights are capped at 30% in each quarterly review, meaning any asset that exceeds that threshold will be cut back in the following rebalance. 

For more details on the index and its constitution, visit a blog from December. 

Figure 1: Index holdings

_{Source: STOXX. Data as of the March 2024 review.}

^[1] https://coinmarketcap.com/

^[2] The Cryptocurrency sector contains blockchains with the primary purpose of being a form of cryptographically secured digital money. The General Purpose Smart Contract Platform sector contains blockchains that offer functionality ‘beyond money’, usually in the form of decentralized applications consisting of smart contracts that utilize the native coin of the blockchain. The DeFi sector contains smart-contract-based protocols that may operate on their own or another blockchain and are powered by a native token. The Utility sector contains blockchains and protocols that enable access to, or represent, a resource. The resource does not have to be digital. The Culture sector contains blockchains or protocols that represent cultural works of art – as opposed to utility. A sixth sector in the taxonomy, Tokenized Assets, is currently not covered in the index methodology. This sector contains blockchains and protocols to manage tokenized versions of asset classes or instruments of traditional finance.

“Investors are clearly allocating significantly more to alternative asset classes to diversify their portfolios. That’s why we are moving into an investment segment that’s increasingly gaining a foothold in portfolios. With Bitcoin Suisse, we do this with an established partner and with an index methodology designed to meet the robustness needs of today’s investors.”

Axel Lomholt, General Manager at STOXX

The STOXX Digital Asset Blue Chip Index tracks a diversified and high-quality basket of assets, utilizing crypto-native metrics to select those which serve as a reflection of the crypto universe today. The list of eligible tokens is derived from all assets classified under the Bitcoin Suisse Global Crypto Taxonomy (GCT). Selection is based on a multi-step procedure which seeks to identify the strongest and most representative assets in each eligible sector. A market capitalization weighting scheme with a cap of 30 percent limits exposure to typically dominant tokens such as Bitcoin and Ethereum.

“With its maximum weighting limit of 30 percent for any individual crypto underlying, the new ETP is as unique vehicle to enter into the crypto world with just one position in your portfolio.”

Marco Infuso, Chief Sales Officer of Valour

“With the launch of this unique blue chip crypto index in collaboration with STOXX, we are taking the next step in the development of our digital assets offering. With its rule-based asset selection, the STOXX Digital Asset Blue Chip Index is Europe’s first investment alternative to pure top market cap crypto asset strategies. Bitcoin Suisse is proud to partner with STOXX to drive innovation further in the crypto- and traditional space.”

Andrej Majcen, Chief Executive Officer at Bitcoin Suisse

About STOXX 
STOXX^® and DAX^® indices comprise a global and comprehensive family of more than 17,000 strictly rules-based and transparent indices. Best known for the leading European equity indices EURO STOXX 50^®, STOXX^® Europe 600 and DAX^®, the portfolio of index solutions consists of total market, benchmark, blue-chip, sustainability, thematic and factor-based indices covering a complete set of world, regional and country markets. STOXX and DAX indices are licensed to more than 550 companies around the world for benchmarking purposes and as underlyings for ETFs, futures and options, structured products, and passively managed investment funds. STOXX Ltd., part of the ISS STOXX group of companies, is the administrator of the STOXX and DAX indices under the European Benchmark Regulation. 

About ISS STOXX
ISS STOXX GmbH, through its group companies, is a leading provider of comprehensive and data-centric research and technology solutions that help capital market participants identify investment opportunities, detect qualitative and quantitative portfolio company risks, and meet evolving regulatory requirements. With roots dating back to 1985, we today deliver world-class benchmark and custom indices across asset classes and geographies and serve as a premier source of independent corporate governance, sustainability, cyber risk, and fund intelligence research, data, and related offerings. Our products and services give clients the scale and leverage they need to grow their business more effectively and efficiently. ISS STOXX, which is majority owned by Deutsche Börse Group, is comprised of more than 3,400 professionals operating across 33 global locations in 19 countries. Its approximately 6,400 clients include many of the world’s leading institutional investors who turn to ISS STOXX for its objective and varied offerings, as well as companies focused on ESG, cyber, and governance risk mitigation as a shareholder value enhancing measure. Clients rely on ISS STOXX’s expertise to help them make informed decisions to benefit their stakeholders. 

Legal disclaimer: 
STOXX Ltd., ISS STOXX GmbH, ISS STOXX Index GmbH, Deutsche Börse Group and their licensors, research partners or data providers do not make any warranties or representations, express or implied, with respect to the timeliness, sequence, accuracy, completeness, currentness, merchantability, quality or fitness for any particular purpose of its index data and exclude any liability in connection therewith. STOXX Ltd., ISS STOXX GmbH, ISS STOXX Index GmbH, Deutsche Börse Group and their licensors, research partners or data providers are not providing investment advice through the publication of indices or in connection therewith. None of their products or services recommends, endorses, approves or otherwise expresses any opinion regarding any issuer, securities, financial products or trading strategies. In particular, the inclusion of a company in an index, its weighting, or the exclusion of a company from an index, does not in any way reflect an opinion of STOXX Ltd., ISS STOXX GmbH, ISS STOXX Index GmbH, Deutsche Börse Group or their licensors, research partners or data providers on the merits of that company and may not be relied on as such. Financial instruments based on the STOXX^® indices, DAX^® indices or on any other indices supported by STOXX are in no way sponsored, endorsed, sold or promoted by STOXX Ltd., ISS STOXX GmbH, ISS STOXX Index GmbH, Deutsche Börse Group or their licensors, research partners or data providers. 

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. 

A 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.

Index dividend futures are popular derivatives that allow investors and traders to gain exposure on the direction of corporate payments and to hedge their portfolios’ dividend risk. 

The EURO STOXX 50 Index Dividend Futures are based on the underlying calculation of dividends for the constituents of the EURO STOXX 50 Index, the benchmark for the Eurozone’s largest stocks. Over 5.3 million contracts were traded in 2023, for a notional volume of nearly EUR 72 billion. 

While there already exist options on the underlying index, these have an annual expiration. Options on the futures will give market participants a more targeted instrument, around a quarterly cycle. More than 3.8 million EURO STOXX 50^® Index Dividend Options (OEXD) contracts were traded in 2023, a 12% increase from 2022 (Figure 1). Open interest in the contracts stood at 2.1 million at the end of December. 

Figure 1 – Trading volume and open interest on EURO STOXX 50 Dividend options

_{Source: Eurex.}

^[1] Mid-curve options is the generic name for listed options that expire into an underlying future that has a longer expiry date than the next settling future.

We sat down with Omar Moufti, Thematics and Sectors Product Specialist for iShares EMEA, to ask him what’s driving demand for essential metals, and how iShares ETFs achieve exposure to this long-term theme. 

_{Omar Moufti, iShares}

Omar, what is the investment proposition with metals?
“From a broad and macroeconomic perspective, one of the key reasons we see investors seeking to allocate to metals is for exposure to real assets in an inflationary environment. The market events over the last few years have put the broad portfolio approach into context, and have pushed investors to refocus attention on diversification and portfolio resilience to various outcomes. This has brought commodity-linked equities to the fore. 

But another reason, more specific to the exposures themselves, is to express bullish longer-term views on metals and the companies that produce them. The mining segment has seen multiple years of underinvestment. In 2022, for instance, exploration budgets remained over 35% below the 2012 peak, despite metals pricing surpassing the peaks from those years.^[1]

It would seem that the prior cycle of overinvestment and low metals prices that followed, as well as current global macro uncertainty, are keeping miners cautious of investing. So if the forecasted demand for metal increases, the limited potential for supply to follow suit paints a constructive backdrop for metal prices, and thus miners.”^[2]

And more specifically, what’s going on with essential metals such as copper and lithium? 
“Besides the broader industry backdrop, there are particular and important drivers for so-called essential metals, drivers linked to the transition to a low-carbon economy: moving from a world centered on the combustion of carbon-emitting energy sources to a world characterized by deep electrification. Both copper and lithium are at the center of the structural demand shift we are seeing on three fronts: renewable energies, transportation and their related infrastructure.

The renewable energy space is generating historic tailwinds for copper and lithium. These metals are used in solar panels, wind turbines and for the electrical grid expansion required to accommodate more renewables, as well as the batteries required to store the electricity.

The uptake in electric vehicles (EV) is another key part of the story. An EV requires 2.5 times more copper than a traditional car.^[3] And each EV charger adds another 0.7 kg. of copper — up to 8 kgs. for fast chargers.^[4] Similarly, lithium is a key component in electric batteries. The International Energy Agency (IEA) expects lithium demand to grow more than eight-fold between 2022 and 2040 in a net-zero scenario, the fastest increase among the primary transition-related metals.^[5] 

There is no guarantee that any forecasts made will come to pass.

All-in-all, we have a strong structural demand growth dynamic as the transition to a low-carbon economy will be metals and materials intensive.”

So, demand for essential metals is surging at a time of underinvestment in the industry?
“Correct. There are important constraints that have led, or could lead, to a large supply-demand gap. Besides the underinvestment in recent years, there are other factors such as long lead times for new lithium processing facilities, and limited copper deposits discoveries in recent years. These add further headwinds to potential supply.

Finally, the production of these metals is often concentrated in a handful of countries,^[6] putting significant global supply at risk in the event of local disruptions. Some analysts expect supply shortfalls in copper and lithium in the next decade, which could push prices higher.^[7]
This supply-demand imbalance and the key role the metals play in the future of our economy have driven some governments — such as the US, for instance — to place these metals on critical minerals lists, illustrating their strategic importance.”^[8]

Can you tell us a bit about the lithium and copper indices?
“The indices target companies generating significant revenues directly from the copper or lithium markets, respectively, and the companies that play a significant role in these industries. The strategies are focused on the targeted segment, as opposed to a broader metals and mining industry exposure. Still, they remain diversified: over 30 companies in the case of copper, or 60 companies in the case of lithium and batteries.”

What is the difference between investing in the actual metals producers as opposed to buying the commodities? 
“In some cases, financial investors can buy commodity derivatives, but managing such contracts can be operationally complex and returns can be eroded by the shape and shifts of commodity futures curves. On the other hand, buying miners’ stocks allows investors to indirectly benefit from the high or rising profitability of these companies derived from elevated or rising metal prices, and potentially from the companies’ improving efficiencies.” 

^[1] Source: S&P Global Commodity Insights cited in Reuters, “Squeezed mining companies face growth dilemma,” January 31, 2023. See also McKinsey, “Navigating a decade of challenges: Five winning initiatives for mining CEOs,” July 1, 2022.
^[2] S&P Global, “World copper deficit could hit record; demand seen doubling by 2035: S&P Global,” July 22, 2022.
^[3] IEA, “The Role of Critical Minerals in Clean Energy Transitions,” May 2021.
^[4] International Copper Alliance.
^[5] IEA Critical Minerals Demand Dataset, July 2023.
^[6] World Economic Forum, “This chart shows which countries produce the most Lithium,” January 5, 2023.
^[7] Reuters, “Energy transition faces metals gap unless investment rises, report finds,” July 20, 2023.
^[8] US Department of Energy, “What Are Critical Materials and Critical Minerals?” February 24, 2022.

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The contracts will be listed on Monday, January 22 and follow in the footsteps of the successful adoption of futures on the STOXX^® EUROPE 600 ESG-X, which have become some of the world’s most traded ESG derivatives. Since listing in February 2019, more than 7 million contracts have exchanged hands on Eurex, with current open interest sitting at EUR 1.6 billion.^[1]

The STOXX SRI indices are part of the ESG & Sustainability family at STOXX, and cover all the major regions. They track the performance of underlying benchmarks after screens are applied for carbon emission intensity, business involvement and ESG performance. 

Investors and traders who must comply with responsible policies have turned to sustainability index derivatives to manage portfolio flows and sustainability risks. Futures, in particular, add to a portfolio’s liquidity and help lower trading costs.

“Clients are increasingly seeking derivatives that align with their unique sustainable investment requirements, all while continuing to meet their portfolios’ tactical and management needs,” said Axel Lomholt, General Manager at STOXX. “Together with Eurex we are building a growing ecosystem of trading tools so investors can efficiently meet these objectives and requirements, and integrate their sustainability considerations in a transparent and regulated manner.”  

Selection process

Figure 1 shows all the exclusionary screens applied in the STOXX Europe 600 SRI index, which go beyond those represented by the STOXX Europe 600 ESG-X.  

After the screens are applied, the remaining securities are ranked in descending order of their ESG scores within each of the 11 ICB Industry groups. The STOXX SRI Indices select the top-ranking companies in each of the ICB Industries until the number of selected stocks reaches a third of the number in the starting benchmark.

Figure 1: Methodology comparison between STOXX Europe 600 SRI and STOXX Europe 600 ESG-X

 _{Source: STOXX.}

ESG results

Since 2014, the SRI portfolio has had an average ESG score that is 7.4% higher than that of the benchmark (Fig. 2). As of December 2023, it had lowered the carbon emission intensity by more than 85%. 

Figure 2: ESG and carbon emission performance

_{Source: 1) STOXX, Sustainalytics. 2) STOXX, ISS ESG. Emission intensity is measured as Scope 1 + 2 emissions in tCO₂e, divided by revenue.}

Comparative metrics

Figure 3 shows risk and returns metrics for the STOXX Europe 600 SRI, the STOXX Europe 600 ESG-X and their benchmark, the STOXX Europe 600. 

Figure 3: Risk and return characteristics

_{Source: STOXX, daily data for the period March 24, 2014, to Dec. 29, 2023. Annualized returns, annualized volatility (standard deviation), annualized tracking error and annualized dividend yield figures are used. Relative figures calculated against the STOXX Europe 600 Index.}

Figure 4 compares the top ten constituents of the benchmark STOXX Europe 600, STOXX Europe ESG-X and STOXX Europe 600 SRI indices. 

Figure 4: Top holdings

_{Source: STOXX. Data as of December 2023. SXXP is the STOXX Europe 600 benchmark.} 

Ongoing collaboration

The introduction of ESG futures in recent years has enabled ESG investors to efficiently manage their portfolios, and avoid mismatches and breaches in responsible policies. In 2019 Eurex and STOXX launched the first pan-European sustainable futures, with the STOXX Europe 600 ESG-X contracts. The latest roll-out with the STOXX Europe 600 SRI futures deepens that collaboration and gives investors a more targeted option when it comes to responsible investing in the derivatives segment.  

^[1] Data through December 2023.

Daily options are an innovative product that allows traders a more targeted exposure than the traditional monthly and quarterly expiries, providing increased flexibility to trade and hedge short-term market fluctuations. They are also the latest tools in a comprehensive investment ecosystem centered around DAX and EURO STOXX 50, the iconic benchmarks. 

According to Eurex, the benefits of daily options include:

• Fast reaction to market movements: Daily options allow market participants to react to sudden market moves and finetune positioning around events such as the publication of key economic figures. 
• Affordability: The lower time value makes daily options cheaper than longer-dated alternatives. 
• Accurate implementation of strategy: With daily expiries and a wide range of available strikes, investors can accurately implement specific views and strategies.

In a recent interview on this blog, Eurex CEO Michael Peters said demand for daily options is “testament to the huge appetite for flexible trading solutions as investors seek to react quickly and precisely to specific market events.”

Within the first two months of trading, more than 670,000 EURO STOXX 50 daily options were traded on the Frankfurt-based exchange.^[1] The instruments’ open interest has exceeded the 20,000-contracts mark. More than 60 members have taken part in trading EURO STOXX 50 daily options. 

Daily options will be the subject of a live Focus Day event organized by Eurex on November 9, which is open to the public for registration. 

An average of 20 million EURO STOXX 50 options and 1.5 million DAX options trade per month on Eurex.^[2]

^[1] Figures between trading start on Aug. 28, 2023 and Nov. 3, 2023. 

^[2] Based on 2023 figures through September. 

The three new Xtrackers ETFs were listed at the Frankfurt Stock Exchange on Nov. 3 and track, respectively, the following indices:

• ISS STOXX^® Developed World Biodiversity Focus SRI
• ISS STOXX^® Europe 600 Biodiversity Focus SRI
• ISS STOXX^® US Biodiversity Focus SRI

The indices have been designed using the ISS STOXX biodiversity framework, introduced in May this year, and integrate additional composition requirements to comply with heightened objectives and policies. They exclude companies involved in activities causing harm to biodiversity, select those with a less negative impact on ecosystems compared to peers, and those supporting relevant UN Sustainable Development Goals (SDGs). Finally, they also reduce the portfolio’s carbon emissions.

Increasing liabilities, rising opportunities

Resource exploitation, climate change, pollution and the introduction of invasive species are among the main drivers behind the rapid degradation of the world’s land and water — and an average 69% decline in wildlife population since 1970.^[1] One sole industry, food production, is estimated to have caused 70% of biodiversity loss.^[2]

Politicians and regulators are turning their focus to reverse this. At the 15th conference of the UN Convention on Biological Diversity (COP15) in Montreal last December, 196 states reached a landmark agreement to protect and restore 30% of the world’s land and water by 2030. For many observers, the Kunming-Montreal Global Biodiversity Framework (GBF) accord could do for biodiversity what the Paris Agreement did for climate: become a tipping point for targeted investment flows. 

The move to protect our habitats raises the regulatory liabilities for corporates and investors, already facing biodiversity-related physical, transition and systemic risks.^[3] The European Central bank (ECB), for example, has started considering biodiversity loss as a growing risk for the financial system. The ECB has found that approximately 72% of Eurozone companies and almost 75% of bank loans to corporate borrowers in the region are highly dependent on at least one ecosystem service. 

However, biodiversity action should not solely focus on risks but also embrace opportunities, identifying companies whose products and services provide solutions to limit or reverse biodiversity loss, either directly or indirectly.

The ISS STOXX biodiversity framework

The ISS STOXX biodiversity framework is composed of four steps working together to allocate capital to companies that minimize their biodiversity footprint and help our world’s natural resources.

Figure 1: Framework’s four steps

_{Source: STOXX.}

The “Avoid” step incorporates negative exclusions, including standard compliance and product-involvement screens, and biodiversity-related activity filters^[4]. In “Minimize,” the indices select the top 80% of companies by ICB Sector with the least impact on biodiversity,^[5] based on ISS ESG’s Biodiversity Impact Assessment Tool (BIAT). The “Enable” stage selects companies whose products and services grant them the highest exposure to selected biodiversity- and climate-related UN Sustainable Development Goals (SDGs).^[6] A final step, “Decarbonize,” ensures the portfolio has achieved a minimum of 30% carbon footprint reduction relative to the starting universe.

Specific to the SRI indices are filters to screen out companies involved in adult entertainment, alcohol, gambling, fossil fuels and nuclear power, as well as those with the lowest ESG ratings (D-, D and D+) from ISS ESG. The ISS STOXX Biodiversity Focus SRI indices also have caps on ICB Industries and single stocks, and a stricter carbon reduction objective than the standard ISS STOXX Biodiversity indices.^[7]

“New developments in sustainability data disclosure enable us to integrate biodiversity impact parameters into portfolios in a transparent and systematic way,” said Antonio Celeste, Director for Sustainability Product Management at STOXX. “This couldn’t be more timely, as the fight to protect our biodiversity has emerged as one of the next critical topics in responsible investing. The ISS STOXX Biodiversity framework offers a complete toolkit for investors to customize existing indices incorporating additional objectives and constraints.” 

Impact performance

Figure 2 shows the comparative performance of the ISS STOXX Developed World Biodiversity Focus SRI index against its benchmark in a series of impact metrics. The biodiversity index managed, over the period considered, to lower its species impact score (PDF) by more than a third, significantly improve the portfolio’s SDG score and reduce its carbon intensity by half. 

Figure 2: ISS STOXX Developed World Biodiversity Focus SRI Index results

_{* Weighted Average Carbon Intensity = Sum[Wi * (Emissions Scope 1 + 2 + 3)i/ EVIC I]. Source: STOXX, as of June 19, 2023.}

For a deeper look into the ISS STOXX Biodiversity framework, please visit an article from earlier this year.

^[1] See “Living Planet Report 2022,” World Wide Fund for Nature (WWF).

^[2] WWF, 2020. 

^[3] Physical risks include the loss of raw materials and disruption of operating environments. Transition risks include policy shifts, change in market preferences and voluntary commitments. Systemic risks include global pandemics. Regulatory or litigation risks include increasing legislation. 

^[4] Companies that are non-compliant based on the ISS ESG Norms Based Screening assessment or are involved in Controversial Weapons are not eligible for selection. Additional exclusion filters are applied, screening companies for involvement in Palm Oil, GMO Agriculture, Hazardous Pesticides, Animal Welfare, Fur Involvement, Tobacco, Adult Entertainment, Alcohol, Gambling, Thermal Coal, Unconventional Oil & Gas, Fossil Fuels, Nuclear Power, Civilian Firearms, and Military Contracting.  

^[5] ISS ESG’s BIAT measure quantifies each company’s impact on biodiversity through a Potentially Disappeared Fraction of species (PDF) ratio. PDF represents — from a total preservation ratio of 0% to full destruction at 100% — the potential decline in species richness in an area over a period due to unfavorable conditions associated with environmental pressures. 

PDF is divided by each company’s Enterprise Value including Cash (EVIC). The indices select the 80% companies in each ICB Sector with the lowest PDF/EVIC.

^[6] The companies are assessed based on their contribution to the SDGs objectives as identified by ISS ESG’s SDG Impact Rating. The rating measures the extent to which companies are managing negative externalities in their operations across the entire value chain to minimize negative impacts, while at the same time making use of existing and emerging opportunities in their products and services to contribute to the achievement of the SDGs. This step screens out the bottom 20% of securities within each ICB Sector in the universe with the lowest biodiversity-related SDG Impact Rating aggregated score. Selected SDGS are SDG 6 – Clean Water and Sanitation (Biodiversity); SDG 7 – Affordable and Clean Energy (Climate); SDG 11 – Sustainable Cities and Communities (Biodiversity); SDG 12 – Responsible Consumption and Production (Biodiversity); SDG 14 – Life below Water (Biodiversity); SDG 15 – Life on Land (Biodiversity).

^[7] While the ISS STOXX Biodiversity indices aim for a 30% reduction in carbon emissions relative to the starting universe, the objective has been raised to a 50% cut in the case of the ISS STOXX Biodiversity Focus SRI indices.  

The STOXX^® Global Lithium and Battery Producers index inaugurates a dual identification process to selecting stocks, involving revenue and patents. The index employs FactSet’s Revere (RBICS) data for a detailed breakdown of the revenue sources of eligible companies, capturing leading and specialized lithium miners and producers. Additionally, EconSight’s patent data is used to identify innovators in lithium battery technology. This unique dual approach yields diversified exposure to both established and pioneering industry players across the entire lithium value chain.  

Companies that are non-compliant with the Global Standards Screening or display a Severe (Category 5) Controversy Rating, as identified by Sustainalytics, are excluded from the index.

The ‘big shovel’: Conductors powering the green revolution^[1]

The brown-to-green revolution requires substantial amounts of metals such as lithium, copper, nickel, cobalt and aluminum, which are good conductors of heat and electricity, and are ductile and malleable. The minerals are enabling the structural boom in solar and wind energy and in electric vehicles (EVs) that’s unfolding as nations drop hydrocarbons. Under the International Energy Agency (IEA)’s Net-Zero by 2050 Roadmap, renewables may increase their share of power from 10% currently to 60% in three decades. Fossil fuels would shrink from almost 80% to about 20% over the period.

The race to extract lithium

Labelled the “white gold” because of the current rush to mine it, lithium is seeing exponential demand growth, mainly for its use in EV batteries, although the metal is also employed in renewable energy storage and cell phones. Innovation in battery technology is enabling faster, more efficient and more reliable powering, putting lithium producers and battery makers at the center of climate action efforts. 

Lithium-ion batteries show several advantages over the traditional lead-acid batteries. The former typically have up to six times higher energy density, have a higher capacity use, a higher depth of discharge, charge in less than a quarter of the time, and last about five times longer. They also perform better in cold weather, making them more suitable for energy storage solutions.^[2]

McKinsey estimates that by 2030 about 95% of lithium demand will come from EV batteries, up from 60% in 2022.^[3] Sales of EVs (cars and light trucks) rose more than fourfold between 2020 and 2022, to a record 10 million.^[4] MIT researchers have estimated that the global EV fleet could surpass 800 million units by 2050 if current Paris Agreement targets are maintained.^[5] The IEA expects lithium shipments from clean energy technologies to grow more than 40 times between 2020 and 2040, the fastest increase among all transition metals (Figure 1).^[6]

Figure 1: Growth in demand for selected minerals from clean energy technologies by scenario, 2040 relative to 2020

_{Source: IEA. Forecasts under IEA’s Sustainable Development Scenario.}

However, lithium demand is far outstripping supply. BloombergNEF has estimated that, by 2040, the output shortfall will reach 5.2 million metric tons.^[7]

Given the difficulty in starting new mines fast enough, lithium prices jumped tenfold between January 2021 and March 2023.^[8] They have dropped in 2023 amid concern of a global recession and as China ended EVs subsidies, but analysts expect a supply shortage to lift prices once again.^[9]

Index components

Figure 2 shows the main composition of the STOXX Global Lithium and Battery Producers. 

Figure 2: Ten largest components

_{Source: STOXX. Data as of Oct. 20, 2023.}

The patent-based selection in the lithium index captures active patents in the lithium battery sector. It assesses a company’s involvement in the theme through either high-quality patents or patent specialization, rather than a simple patent count.

Performance

The STOXX Global Lithium and Battery Producers index has outperformed the STOXX^® World AC index in backtested data over the past three and five years (Figure 3). The index has also beaten a broader benchmark of mining stocks, the STOXX^® World AC Basic Materials, testament to the thematic index’s pure exposure to the energy transition metals growth story. As is intended with most thematic indices, the strategy is designed to capture long-term structural trends. 

Figure 3: Index annual returns

_{Source: STOXX. Gross returns in dollars.} 

Not enough raw materials

With countries across the world pressing ahead with policies to boost brown-to-green assets and meet net-zero goals, demand for climate transition materials and technology will remain exceptional. While the world is consuming more of energy transition metals year after year, the opening of new mines takes over 1.5 decades on average, a long process that will exacerbate current supply shortages. These constraints may well place the metals at the top of national and energy security issues, similar to what happened with oil in the 20^th century. 

The historical shift in the way the world consumes energy is having a deep impact in the minerals market and constitutes a long-term megatrend that can be captured through a well-designed thematic investment strategy. The STOXX Global Lithium and Battery Producers index covers an area of increasing investor interest, allowing them to tap the energy transition metals theme through the companies that stand to benefit most from growing demand.

^[1] The “big shovel” was a phrase used by Daniel Yergin, a renowned energy expert, to describe the mining boom that will result from mining critical energy transition metals to power the shift from a fuel-intensive energy system to a sustainable one.

^[2] See AutoZone, “Lead Acid Vs. Lithium-Ion Jump Starters;” energysage, “Lithium-ion vs. lead acid batteries: How do they compare?” and Skill-Lync, “Top 10 Differences between Lead-Acid Batteries and Lithium-Ion Batteries.”

^[3] McKinsey & Co., “Battery 2030: Resilient, sustainable, and circular,” Jan. 16, 2023. 

^[4] IEA, “Global EV outlook 2023.”

^[5] MIT, “Electrifying cars and light trucks to meet Paris climate goals,” Aug. 10, 2021. 

^[6] IEA, “The Role of Critical Minerals in Clean Energy Transitions,” May 2021.

^[7] BloombergNEF, “Transition Metals Outlook 2023.” 

^[8] Source: Benchmark Mineral Intelligence.

^[9] See, for example: Morningstar, “Lithium: We Expect Prices During This Decade to Remain Higher Than Market Valuations Imply,” June 1, 2023. 

The EURO STOXX 50 ESG index reflects the benchmark EURO STOXX 50^® after standard ESG exclusion screens are applied for global norms¹, controversial weapons, small arms, military contracting, thermal coal, unconventional oil and gas, tobacco, ESG controversies and ESG risk. Thereafter, companies with the lowest ESG scores are excluded until a total of 20% of holdings of the initial EURO STOXX 50 components are excluded. 

Each exclusion is replaced by the largest EURO STOXX^® company from the same ICB Supersector that has a higher ESG score, preserving the sector diversification that’s an attribute of the benchmark.

“BlackRock continues to expand its range of sustainable products, increasing the options available to investors interested in incorporating sustainability considerations into their portfolios,” said David Wenicker, Head of iShares & Wealth for Germany at BlackRock.

The EURO STOXX 50 ESG has returned 55.2% in the past five years, compared with a 47.9% return for its benchmark.² Nevertheless, the ESG gauge has had a similar risk/return profile as the benchmark, registering a tracking error of 1.8% over the entire period. 

“We are pleased to have expanded our collaboration with BlackRock and iShares, and particularly excited to see continued demand for responsible investing strategies,” said Axel Lomholt, General Manager at STOXX. “For 25 years, the EURO STOXX 50 has stood for an accurate and reliable representation of the Eurozone equity market. The EURO STOXX 50 ESG maintains those characteristics while meeting new sustainability requirements that are becoming standard among leading investors.” 

Passive ESG ETFs attracted a net EUR 16.1 billion in the first six months of 2023, while total assets invested in the vehicles expanded by 14% to EUR 392 billion, outperforming non-ESG funds, according to STOXX Market Intelligence. Around 8.1% of global passive ETFs’ net inflows this year went to ESG ETFs, meaning the funds (which have a 4.9% share of total ETF’s assets under management) continue to gain territory in the world’s assets landscape.

The EURO STOXX 50 ESG keeps the same liquidity and tradability characteristics of its well-known benchmark, and is part of a large ecosystem that includes one of the world’s most traded futures contracts.  

To read more about the ESG benchmark’s composition, download a whitepaper here. 

^[1] Global norms as guided by the Sustainalytics Global Standards Screening assessment.

^[2] Total returns in euros through July 31, 2023.