Many investors cringe at the thought of more government involvement in various industries and sectors. But in some market segments, government assistance and support has the potential to generate favorable outcomes. Carbon reduction/net zero is one such arena. Some market observers believe sovereign government participation in reduction is essential.
That could bolster the long-term outlook for funds such as the KraneShares Global Carbon Strategy ETF (KRBN), the KraneShares European Carbon Allowance Strategy ETF (KEUA), and the KraneShares California Carbon Allowance ETF (KCCA).
Around the world, a slew of governments have ambitions net zero plans. Many of these can be expedited via public/private partnerships. As those plans unfold, subsequent spending is likely to be sizable. That would potentially draw attention to opportunities with KRBN, KCCA, and KEUA.
Bright Outlook for Carbon ETFs
KRBN, KCCA, and KEUA are rooted in credits. These credits are forecast to experience exponential growth in the coming years. That is due to more corporations and governments moving to reduce their carbon footprints.
“Debate on the carbon footprints of sovereign bond issuers is only likely to heat up, especially amid an intensifying focus on climate reparations, carbon taxes, and national carbon budgets. This sets up an opportunity for investors to engage with governments as they work to decarbonise their portfolios, using carbon footprinting as a tool to support climate reporting and risk assessment,” according to BNP Paribas.
An overlooked issue could also bode well for long-term adoption of such credit investing strategies like the aforementioned KraneShares ETFs. And that is more clarity on and reduced complexities in tracking such sovereign output.
“Further complexities stem from the fundamentally multi-faceted nature of sovereign-based national emissions. All sovereigns have emissions from both domestic consumption and outsourced production. They are difficult to track accurately, and weightings can be highly subjective, which limits their usefulness for comparisons,” added BNP Paribas.
Global emissions tracking data is evolves and becoming easier to digest for market participants. So more investors could consider funds such as KCCA, KEUA, and KRBN.
“For instance, Assessing Sovereign Climate-related Opportunities and Risks (ASCOR) is aiming to develop a publicly available, independent tool that assesses countries on climate change and progress on climate change management and the low-carbon transition. Its framework should provide up-to-date, robust data to enable an accurate understanding and assessment of sovereign GHG emissions,” concluded BNP Paribas.
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