As mentioned in the World Economic Forum, the carbon credit market plays a pivotal role in helping to achieve “a more sustainable and nature-positive future.” Projects focused on this initiative require funding, and the capital markets can be a vital resource when it comes to making these projects come to life.
Like any project, the goal of net zero will take time. Consequently, time is also money, meaning that capital investments will need to be made in order to keep net zero-focused projects moving forward.
“Sadly, nature-based solutions face a $711 billion annual funding gap through 2030 to reach their potential for climate and biodiversity,” the World Economic Forum article noted. “Carbon markets can help close this funding gap, allowing organizations to financially support innovative nature-based projects worldwide by purchasing carbon credits.”
As mentioned in the Financial Times, the capital markets offer carbon project developers an opportunity to receive funding they might not be able to get via other means. For climate-conscious investors who want to also attain future upside in the market, it presents an ideal opportunity.
“As well as trading and using carbon credits, some investors want more long-term involvement in the market, while carbon credit project developers are turning to capital markets to help finance new offsetting schemes,” the Financial Times noted.
2 Carbon Credit ETF Opportunities
The carbon credit market opens up growth opportunities, particularly in parts of the globe where it’s expanding. Europe, for example, is looking to expand the carbon credit market, giving investors an opportunity to capture growth via exchange traded funds (ETFs).
One such opportunity is the KraneShares European Carbon Allowance ETF (KEUA). The fund offers targeted exposure to the EU carbon allowances market and is actively managed.
The fund’s benchmark is the IHS Markit Carbon EUA Index, an index that tracks the most-traded EUA futures contracts, a market that is the oldest and most liquid for carbon allowances. The market currently offers coverage for roughly 40% of all emissions from the EU, including 27 member states and Norway, Iceland, and Liechtenstein. KEUA has an expense ratio of 0.78%.
For a more global reach in the carbon credit market, investors may want to consider the KraneShares Global Carbon ETF (KRBN). KRBN tracks the IHS Markit Global Carbon Index, which follows the most liquid carbon credit futures contracts in the world.
As mentioned on its product website, KRBN “introduces a new measure for hedging risk and going long the price of carbon while supporting responsible investing.” In terms of its global reach, the fund includes contracts from the European Union Allowances (EUA), California Carbon Allowances (CCA), Regional Greenhouse Gas Initiative (RGGI) markets, and the United Kingdom Allowances (UKA).
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