China International Capital Corporation has launched a new ETF in Hong Kong providing exposure to cap-and-trade carbon allowances issued in Europe.
The CICC Carbon Futures ETF, which is the first carbon credit ETF to be launched in Greater China, has been listed on the Stock Exchange of Hong Kong in Hong Kong dollars (Ticker: 3060 HK), Chinese renminbi (83060 HK), and US dollars (9060 HK).
The ETF comes with an expense ratio of 0.99%.
In a typical cap-and-trade regime, a limit (or cap) is set by a regulator, such as a government entity or supranational organization, on the total amount of specific greenhouse gases, such as CO2, that can be emitted by regulated entities, such as manufacturers or energy producers.
The regulator may then issue or sell individual emission allowances to regulated entities. Polluters that want to increase their emissions must buy allowances from others willing to sell them, thereby representing a market-based approach to controlling pollution.
By incrementally scaling back the number of allowances over time, cap-and-trade regimes represent a powerful policy tool for achieving ambitious climate targets, such as those set out by the Paris Agreement.
The CICC Carbon Futures ETF tracks the ICE EUA Carbon Futures Index which consists of a long-only basket of commodity futures contracts linked to the value of emission allowances under the European Union Allowances (EUA) cap-and-trade program, the world’s oldest and most liquid carbon allowance market.
The EUA program, which covers approximately 40% of the EU’s total emissions, aims to reduce carbon levels to 45% of 1990 levels by 2030 and achieve carbon neutrality by 2050.
Ning Lin, Managing Director at CICC Hong Kong Asset Management, said: “This ETF highlights our commitment to the development of climate-themed products and our overall capabilities in structuring innovative investment solutions. This new ETF will allow investors to access one of the largest, most liquid, and most actively traded carbon markets in the world. Better still, as the carbon market exhibits low correlation with other assets, it is an excellent choice to deliver portfolio diversification.”
Brian Roberts, Head of ETPs at the Stock Exchange of Hong Kong, added: “Climate change and decarbonization have been areas of increasing focus for investors worldwide. The launch of a carbon strategy ETF in Hong Kong opens up new opportunities for investors to participate in the reduction of carbon emissions in a convenient and cost-effective way, adding to the vibrancy of our ETF product ecosystem.”