Specialist manager VanEck is set to launch an exchange-traded fund (ETF) providing individuals with a different approach to environmental, social and governance investing through carbon credits.
The VanEck Global Carbon Credits ETF, trading under the Australian Securities Exchange (ASX) ticker XCO2, is a synthetic offering that will track the ICE Global Carbon Futures Index, which uses the four most actively traded and largest carbon markets and emission trading schemes in the world to source carbon credit futures prices. The four markets are the European Union Emissions Trading Scheme, Western Climate Initiative (California Cap and Trade Program), Regional Greenhouse Gas Initiative and UK Emissions Trading Scheme.
The manager said global carbon credit futures make up the underlying assets of the ETF because they can be freely traded on global exchanges with attractive market size and liquidity.
“This opportunity is important because it gives investors access to a global marketplace for carbon credits. Importantly, carbon credit prices are expected to increase significantly as the fight against climate change gains momentum. This will raise the value of carbon credits futures and this asset class will likely benefit significantly over the longer term, making it attractive for investors to get exposure,” VanEck Asia-Pacific chief executive Arian Neiron noted.
Apart from the return potential associated with carbon credit futures, Neiron noted there is another characteristic that will aid investors from a portfolio construction perspective.
“Carbon credits have historically been lowly correlated to mainstream asset classes and can be potentially used as a hedge against the impact of carbon emissions risks on investor portfolios,” he said
“The VanEck Global Carbon Credits ETF (Synthetic) will allow investors to take advantage of the potential rise of carbon credit prices by giving investors access to the biggest global emissions trading schemes.”
A carbon credit is a permit allowing an organisation to emit a prescribed amount of carbon dioxide and greenhouse emissions.
The ETF is subject to ASX and regulatory approval.