The KraneShares Global Carbon Offset Strategy ETF (KSET) is the first U.S.-listed ETF that offers investors exposure to the voluntary carbon markets, and it was announced yesterday in a press release that it would now be tracking the S&P GSCI Voluntary Carbon Liquidity Weighted Index. The index is also a first-of-its-kind fund due to offering a benchmark for the global voluntary carbon futures market performance that trades through the CME group.
The fund is structured to offer global coverage of voluntary carbon markets by tracking carbon offset futures contracts comprised of nature-based global emissions offsets (N-GEOs) as well as global emissions offsets (GEOs) that trade via the CME group.
As the voluntary carbon markets are a dynamic space, the index is structured in a way that will allow flexibility in reweighting the securities it tracks. It will also move securities in and out of the index on a regular basis, and it only tracks carbon offset credit futures that have a maturity within the next two years. The index weights the offset futures it tracks by the total value of their traded volume over the last six months.
“Previously, KraneShares and IHS Markit, which is now part of S&P Global, made history when we launched the KraneShares Global Carbon Strategy ETF (KRBN). KRBN uses the IHS Markit Global Carbon Index as its benchmark,” said Luke Oliver, managing director and head of strategy at KraneShares, in the press release. “We are pleased to deepen our relationship with S&P Global and leverage their extensive history as an index provider and their strong research capabilities to capture the complex and ever-changing voluntary carbon market through KSET’s new index.”
N-GEOs adhere to the Verified Carbon Standard, which set the requirements for projects within Agriculture, Forestry, and Other Land Use (AFOLU). The N-GEOs are also certified by the Verra Registry’s Climate Community and Biodiversity Standard, which selects projects that work towards climate change goals, support local communities and smallholders, and work to protect and conserve biodiversity. The GEOs meet Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) from VCS, the American Carbon Registry, or the Climate Action Reserve.
Projects that can be found within voluntary carbon markets include traditional approaches to carbon capture through reforestation and similar endeavors, as well as more recent, technology-driven ones such as direct air capture.
“The voluntary carbon market serves as a powerful tool in the global fight to combat climate change and an important way to accelerate the transition to a decarbonized world,” said Eron Bloomgarden, co-founder of Climate Finance Partners (CLIFI), KSET’s non-discretionary sub-advisor, in the press release. “At the same time, it provides price discovery, a potential hedge for climate risk exposure, and diversification from traditional asset classes.”
KSET carries an expense ratio of 0.79%.
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