News December 1999/January 2000 Trading weather on the web Two new internet-based exchanges were launched in December offering data, pricing tools and a forum for buyers and sellers to agree terms on weather risk management contracts. But these early Christmas gifts to the fledgling market have had a mixed response from established weather risk specialists. "I know virtually nothing about these projects," says one London-based industry veteran. "The idea sounds good but I would have expected them to talk to the people with the most experience before launching such systems." The UK-based Internet Weather Exchange (I-WeX) was unveiled on 23 December. Formerly known as EI-WeX (see Environmental Finance, October 1999), I-WeX is the product of a joint venture between research and development company Intelligent Financial Systems (IFS), insurance information supplier WIRE, and the London International Futures and Options Exchange (Liffe). At present, the I-WeX site can only be used for 'simulated'' trading, and real trades are unlikely to begin before March. US rival Tradeweather, an initiative of consultants Risk Strategies, was displaying data ahead of I-WeX and announced plans to start trading in early January. Mellon takes eco-enhanced plunge Mellon Capital, a San Francisco-based asset manager, is to launch a fund which its designers describe as the first environmentally-enhanced index tracking product. The fund includes all the components of the S&P 500 equity index, but the managers will underweight or overweight component stocks according to their environmental rating. The fund, called the Mellon Eco-enhanced Index Fund, uses New York-based Innovest Strategic Value Advisors' EcoValue 21 environmental performance ratings to decide on the weighting of component stocks. The weighting of industry sectors, however, will mirror that of the S&P index to reduce tracking error. UK exporters face environmental grilling New rules requiring UK exporters to assess the environmental impact of their projects if they want financial backing from the Export Credits Guarantee Department came into force on 4 January. They have been attacked by industrialists as inappropriate and by environmental campaigners as too timid. "Environmental screening should be conducted by host governments - not the UK government," says Andy Scott, director of international competitiveness at the Confederation of British Industry (CBI). "It's a very small step in the right direction," concedes Tony Juniper, policy director at lobby group Friends of the Earth "but it sets no targets and there is no consistency with international procedures." UK managers plan corporate bond funds Two fund managers are racing to launch the UK's first socially responsible corporate bond fund. Scottish Equitable Asset Management hopes to launch a fund in the first half of this year. A source at Henderson Investors says the company is also looking at the possibility of a corporate bond product. "There's clearly a hole in the market for a socially responsible fund that generates regular income for investors," says Eddy Reynolds, product development manager at Scottish Equitable Asset Management in Edinburgh. "It's screaming out to be done." Business fears EU green law A proposed European Union (EU) environmental liability law could trigger a flood of litigation and force industry to pay "unquantifiable damages", according to European business groups. The European Commission, the EU's bureaucracy, is due to issue a white paper on environmental liability on 18 January. It will outline proposed future policy on polluter liability for both 'traditional' damage to persons and property as well as environmental damage. This covers site contamination and damage to natural resources, and is intended to enshrine the principle that the "polluter pays". Agreement reached on air pollutants Twenty seven countries in Europe and North America agreed in December to cut emissions of four air pollutants under the terms of the Gothenburg Protocol. But the European Commission is planning to introduce more stringent ceilings on the 15 member states of the European Union (EU) - despite opposition from industry and UK and southern European governments. The Gothenburg Protocol, signed on December 1 in the Swedish city, covers sulphur dioxide (SO2), nitrogen oxides (NOx), volatile organic compounds (VOCs, from solvents and paints, for example) and ammonia emissions up to 2010. CME to go back to the market Dealers are hopeful that the introduction of 'strip' weather derivatives contracts on the Chicago Mercantile Exchange, expected in March, will help to boost activity in the new products. Weather futures and options, launched in September, have so far failed to attract much trading volume, although the exchange says it is satisfied with their progress. "Once the CME launches seasonal contracts, people will come to the exchange," says Jim Gosselin, executive managing member at Castlebridge Partners, a weather derivatives dealer, based in Chicago. "The monthly contracts don't fit the market." Montreal Protocol slows down International agreement was reached to further reduce the consumption and production of ozone-depleting substances (ODSs) in Beijing in December. The parties to the United Nations' Montreal Protocol and Vienna Convention agreed to freeze the production of hydroflourocarbons (HCFCs) in developed countries by 2004, and in the developing world by 2012. Further measures were also agreed to tighten the rules on a number of other chemicals. But the European Union (EU) - which was a key player in Beijing in establishing tighter controls - and environmental groups both say that the "Beijing Amendment" to the Montreal Protocol leaves issues unresolved. Swiss Re tests internet trading Swiss Re has been "overwhelmed by client reaction" to its new electronic market for trading reinsurance products - the Electronic Risk Exchange (ELRiX) - says marketing executive Nicole Frunz. But transaction sizes did not reach the company's expectations, she admits. ELRiX is essentially an internet-based auction of a small part of Swiss Re's insurance capacity. The company claims it is the first time the internet has been used to offer standardised risk products. The first auction ran from 18 November until 25 November and the second from 8 December to 15 December. FOR THE FULL STORY EVERY MONTH, SUBSCRIBE TO ENVIRONMENTAL FINANCE, OR CONTACT info@environmental-finance.com FOR OUR BACK ISSUES SERVICE