The Integrity Council for the Voluntary Carbon Market (ICVCM), an independent governing body that oversees the governance of the voluntary carbon market, continues to bring definition and structure to voluntary markets through the latest draft release of its Core Carbon Principles (CCPs). It’s a move that could equate to long-term upward price momentum for the voluntary carbon markets, providing opportunity for advisors and investors.
In order to meet CCP criteria, credits must create additional permanent greenhouse gas emission reductions, the program that issues the credit must be transparent regarding all activities related to the credit and available to the public, and the program must have “effective” governance to ensure this transparency and accountability as well as permit third-party verification. Additionally, a registration must be used for the individual carbon credit, and the mitigation activity of the project that creates the carbon credit should always be in alignment with a goal of being net-zero by 2050.
Core Carbon Principles are high-quality carbon credits that were created by drawing from elements developed by the Taskforce on Scaling Voluntary Carbon Markets, the International Panel on Climate Change, and the United Nations Framework Convention on Climate Change’s Paris Agreement and Cancun Safeguards. They were also created by pulling from the emissions unit criteria under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) within the International Civil Aviation Organization, Calyx Global’s work within the space, and the Carbon Credit Quality Initiative.
CCPs will create a high-quality standard for voluntary carbon credits and the draft, currently open for comments through the end of September, was released alongside an assessment framework for determining whether individual carbon credits and carbon-credit programs meet the new high standards as well as an assessment procedure for approving CCP carbon credits and tagging them uniquely to prevent double-counting.
Investing in the Voluntary Carbon Market With KSET
As increasingly more public and private companies turn to voluntary credits to meet stated emissions reductions goals, the credibility of the voluntary market will be of the utmost importance. With the ICVCM working to ensure that there is transparency, credibility, and quality emissions reductions created from CCP credits, CCPs could become one of the main standards that investors, shareholders, and regulators will rely on, creating upward price pressure for the voluntary carbon markets, according to Kirkland & Ellis, a Chicago-based law firm.
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 tracks the S&P GSCI Voluntary Carbon Liquidity Weighted Index. The index also offers a first-of-its-kind 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.
KSET carries an expense ratio of 0.79%.
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