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Integrating ESG into multi-asset structured products
A diversified approach to navigate market volatility while promoting sustainable practices
Phelps Wong 29 Nov 2023

Environmental, social and governance (ESG) considerations have gained immense traction in the investment landscape. As investors increasingly seek to align their portfolios with their values and promote sustainable practices, the integration of ESG factors has extended beyond traditional equity and fixed-income investments.

One noteworthy development is the incorporation of ESG principles within multi-asset structured products, offering investors a diversified approach to navigate market volatility while promoting responsible investing. The Asset team identified this trend while assessing outstanding structured investment solutions in the market as part of the process in arriving at the winners of The Asset Triple A Private Capital Awards 2023.

Société Générale, which manufactures structured products that grant access to a multi-asset index integrating ESG considerations, introduces investment solutions providing diversified exposure to clients expressing a strong interest in exploring sustainable alternatives, in light of the market turbulence experienced in past two years.

By combining the performance of an ESG equity fund and a green bond fixed income fund, the BR Dynamic Multi-Asset ETF 5% VT (EUR - Excess return) Index offers diversification across multiple asset classes. This diversification has the potential to reduce portfolio risk and enhance stability while optimizing risk-adjusted returns.

Moreover, this innovative approach provides an alternative to the traditional 60/40 portfolio allocation, allowing clients to achieve stable returns through the inclusion of volatility target features and dynamic weighting framework. The dynamic weighting framework ensures adaptability to changing market conditions, while the volatility target mechanism within the index helps manage downside risk by limiting the magnitude of price fluctuations. By setting a specific volatility target, investors can have greater control over the risk profile of their investments. This can be particularly beneficial during periods of market turbulence, as it helps mitigate the potential impact of extreme price movements.

The systematic approach allows for a rules-based and transparent investment strategy. Investors can have a clear understanding of how the index is constructed and the factors that influence its performance. This transparency fosters trust and facilitates informed decision-making for investors.

ESG-focused multi-asset structured products play a vital role in navigating market volatility. The inclusion of ESG criteria allows investors to identify companies and assets that exhibit strong sustainability practices and robust governance structures, which can contribute to resilience in times of market turbulence. By considering factors such as climate change resilience, social impact, and ethical business practices, ESG embedded multi-asset structured products provide a potential avenue for managing risk and delivering sustainable returns in the face of market uncertainties.

The offering, “BR Dynamic Multi-Asset ETF 5% VT (EUR - Excess return) Index”, won the Best Structured Investment and Financing Solutions in Multi-Asset at The Asset Triple A Private Capital Awards 2023.

This article is the latest edition of our Nuts & Bolts series that looks into the nitty-gritty of some of the sophisticated investment products and capital markets deals in Asia. For the previous article in this series, please click here.

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