El Niño Specter Highlights Need for Carbon Reduction

Meteorologists believe the odds of El Niño — the scenario in which surface temperatures rise in the Pacific Ocean, potentially creating large storms — are increasing. The World Meteorological Organization estimates the odds of El Niño arriving in the second half of 2023 are 90%.

Heightened El Niño probabilities arrive as the world is already dealing with extreme, record-breaking heat. Those ominous climate scenarios underscore the need for companies and governments to continue driving carbon-reduction agendas. A bright spot comes in the form of investment opportunity, including with exchange traded funds such as the KraneShares Global Carbon ETF (NYSE: KRBN).

KRBN debuted in July 2020. It was the first ETF providing investors with exposure to the vast global carbon credit trading market. KRBN, which follows the HIS Markit Global Carbon Index, is a $543.69 million fund today. KRBN is also pertinent at a time when the specter of El Niño and soaring global temperatures confirm there’s much work to be done on the carbon reduction front.

Good Time to Make KRBN Call

In an optimistic scenario, El Niño doesn’t arrive later this year. However, that doesn’t diminish the need for climate change to be addressed here and now. Nor does it damp the potential potency of ETFs such as KRBN.

“Extreme heat is already being felt with the hottest week on record for the entire planet in the beginning of July, following the hottest June on record according to the World Meteorological Organization,” according to Charles Schwab research. “Fierce heatwaves are being felt across the globe, including one last week  (month) that dried up some of Europe’s main rivers, threatening supply chains and energy supplies.”

KRBN, which is higher by nearly 2% over the past month, is relevant on another front. Traditional energy costs are major contributors to inflation, and as temperatures increase, so do those costs. That is to say, there is significant inflation-fighting merit in adopting carbon-reduction strategies.

“Energy inflation could be boosted by low water levels in reservoirs, curtailing hydropower generation, adding to the strain on power supplies, and putting upward pressure on gas and coal prices. Energy demand may also rise due to higher air conditioning needs,” added Schwab.

Inflation stoked by climate change is just one example of how rising temperatures act as headwinds to global economies. Additionally, soaring temperatures create lost productivity among workers, acting as a drain on global GDP. This also points to the relevance of KRBN.

For more news, information, and analysis, visit the Climate Insights Channel.