Alternative Investments/ESG: KRBN, A New ETF, Could Move The Needle on Carbon Pricing

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“By Going Long the Price of Carbon Emissions Investors Can Support Positive Climate Action.”

Krane Funds Advisors LLC, which is the investment manager for KFA Funds and KraneShares ETFs, announced the launch of  KFA Global Carbon ETF (NYSE: KRBN). The new KRBN ETF tracks carbon credit futures contracts through the  IHS Markit’s Global Carbon Index. (CISION PR Newswire)

Carbon prices have bullish potential

According to the Financial Times, over the past two years, European carbon allowances within the European Union Emissions Trading System were the world’s top-performing commodity.

“If global policymakers are serious about the Paris Agreement targets, a rising price on carbon is inevitable: the limited space in the atmosphere to store more CO2 is the ultimate scarce resource and it will be priced accordingly,” says the FT.

According to IHS Markit, as of July 29, 2020, the global price of carbon was $19.77 per ton of CO2. Carbon allowance prices could reach a range of $50 – $100 per ton of CO2 if companies and countries become serious about achieving the emissions reductions goals of The Paris Agreement.

It may also be noted that carbon credits are a useful diversification investment as they are not correlated to the vagaries in other financial markets.

They are also a hedge against carbon-intensive companies. As the cost of carbon emissions rise, KRBN typically benefits, while companies with heavy carbon footprints typically suffer.

“As of today, KRBN is the first US-listed ETF to combine the largest carbon allowance markets into a single investable fund,” said Jonathan Krane, CEO of Krane Funds Advisors, LLC. “KRBN can support positive climate action by allowing investors to go long the price of carbon emissions.”

ESG the flavor of the 2020 season

“The climate crisis threatens life itself. Just as COVID-19 demanded an early response, so do the threats of climate disaster. One of the most powerful ways the world can collaborate to reduce emissions is to move toward carbon pricing that puts basic, free-market economics to work,” said Former Secretary of State, John Kerry. John Kerry is the Chairman of the Climate Finance Partners Advisory Board (CLIFI), which is the sub-advisor to KRBN.

Emission reduction is a key ESG prerogative. Investors have been shoveling funds into ESG-focused funds and ETFs in 2020 at a much higher pace compared to 2019.

According to data from ETFGI on global trends for ESG in ETFs/ETPs during the first half of 2020, inflows into these funds were US$3.49 billion during June 2020, bringing year-to-date net inflows to US$32.02 billion. These were more than three times the inflow of US$9.86 billion into ESG ETFs/ETPs seen in 2019.

Further, assets invested in ESG ETFs and ETPs increased by 7.3% from US$82 billion at the end of May to a new record of US$88 billion in June.

“Following COVID-19, the climate crisis is perhaps the single largest long-term challenge facing the global community,” said Eron Bloomgarden, Founder of CLIFI, in the context of KRBN. “Addressing climate change through carbon emissions pricing presents an enormous opportunity to rebuild a greener, safer, and more resilient economy.”

Related Story:    EFIV – A New, Inexpensive ESG ETF From State Street

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