Demand for ESG structured notes spells hedging pain for banks

As products linked to niche equity indexes grow in popularity, banks grapple with vol risk they pose

Environmental, social and governance, or ESG, principles have taken the investment world by storm in recent years. But now there is a storm brewing over the hedging of certain ethical investment products – a sizeable and growing subset of the $7 trillion structured product market.

As ESG equity indexes proliferate and investors become increasingly discerning, demand for structured notes linked to niche and bespoke sustainable indexes is rising. Hedging such products, though, is challenging as

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