Australian Economy

Australia’s first carbon credits ETF set to hit ASX

VanEck Asia-Pacific managing director Arian Neiron said the ETF would allow environmentally conscious investors to aid decarbonisation of the economy – a customer base he said was growing as evidenced by the weekend’s election at which Greens and Independent candidates running on an agenda of climate action out-performed expectations.

“The teal wave really reinforces for me that the timing for this product is now,” Mr Neiron told The Australian Financial Review. “Having a global carbon credit fund listed on the ASX will provide a real barometer. People voted for change [on climate action] and also seem prepared to [enlist] their portfolios as well. There is definitely strong momentum.”

The Australian Greens had their most successful election in history, with at least two MPs elected to the House of Representatives, while another five or six Independent “teal” candidates backed by lobby group Climate 200 were successful in unseating incumbent Liberals in wealthy electorates.

The ASX does not comment on pending products prior to admission. But a spokesman for the trading venue said “there is strong interest in launching products with exposure to carbon credits among existing ASX product issuers and other parties”. He confirmed that no ASX-listed ETFs currently provided exposure to carbon credits.

$684b market and growing

Futures linked to carbon credits are a burgeoning market, with $684 billion worth of these instrument traded across the four markets included in the index in the 2021 calendar year. An additional $306 billion has already been traded from the beginning of this year to the end of April.

By holding carbon credit exposures in their portfolios, investors are effectively helping to create incentives for big polluters to cut emissions, Mr Neiron said. “The more people trade, and the greater demand is, the more that pushes up the carbon price,” he said. “So in effect investors are supporting … a catalyst for change by emitters and in consumer behaviour.”

The launch comes as Australia’s own voluntary carbon credit market is still reeling from claims it is “flawed” and home to “sham assets” – scathing criticism made by academic Andrew Macintosh in March. The price of Australian Carbon Credit Units issued by the Clean Energy Regulator crashed that month off the back of rhetoric from the Morrison government, allowing oil and gas companies to offset emissions at a cheaper rate.

Fund manager Ben Cleary of Tribeca Investments Partners told the Financial Review at that time that a market of retail managed funds providing access to carbon credits was “yet to flourish” in Australia due to margin and custody concerns.

But Mr Neiron said VanEck was deliberately moving ahead of the local carbon credit markets and national policy to provide a solution for retail investors. “Australia currently doesn’t have a carbon emissions trading scheme and none of the main political parties has said ahead of the federal election that they intend to introduce one now, or in the future, despite the urgency to cut carbon emissions,” he said.

While some ethically motivated investors may be most interested in the environmental outcome of carbon credit markets, Mr Neiron said they should also provide a financial return over time as nations and companies committed to net zero by 2050 continue to cut emissions, pushing up the price of carbon.

He claimed carbon credit futures are “lowly correlated” to traditional asset classes like stocks and bonds and could provide a hedge against inflation.

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