The capital markets saw just how much climate change could impact the investing world, especially with the explosive growth of environmental, social, and governance (ESG) investing. It’s changing the way institutional money is invested, including that of pension funds.
One way to accommodate the impact of climate change is for pension funds to be more flexible. Changing policies and regulatory measures make the climate change industry a dynamic one, requiring the ability to shift and pivot quickly.
“Few areas of our industry have evolved as rapidly as climate change in recent years, so the onus is on asset owners and managers to be nimble in response,” said Faith Ward, chief responsible investment officer at Brunel.
In a Pensions & Investments article, Ward noted that new climate change policy “will not only affect how we design and evolve our portfolios. It will also impact how we recruit and monitor the managers we appoint to run mandates on those portfolios. Finally, it will impact how we engage more broadly beyond our partnership, whether coordinating with other asset owners on RI issues, or pressuring companies to improve their practices.”
2 Climate Change ETF Options to Ponder
Given the evolving nature of climate change’s impact on the investing world, it presents opportunities in exchange traded funds (ETFs) that can capitalize on this growth. One such opportunity, especially for a Euro-centric focus, is the KraneShares European Carbon Allowance ETF (KEUA), which 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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