KraneShares has expanded its ‘Climate Investment’ offering in the US by launching the first ETF globally to provide exposure to carbon offsets.
Carbon offsets allow companies to compensate for their residual emissions from their ongoing activities.
The KraneShares Global Carbon Offset Strategy ETF (KSET US) has been listed on NYSE Arca with an expense ratio of 0.79%.
Carbon offsets are physically settled futures contracts that reference the price of reducing or removing a specific amount of greenhouse gases (measured in tonnes of carbon dioxide-equivalent (CO2e)).
Each contract is underpinned by a sustainability-focused project such as forest conservation, wind farm development, methane gas capture, or energy efficiency enhancement, among others.
Buyers of carbon offsets are usually corporations (but could also be governments and sometimes even individuals) that voluntarily purchase the contracts to compensate for residual and hard-to-abate emissions from their ongoing activities. These entities are often utilizing carbon offsets as a short-term bridge while they work on implementing longer-term decarbonization measures.
The actively managed ETF invests in nature-based global emission offsets (N-GEOs) and global emission offsets (GEOs) that trade on Chicago Mercantile Exchange and expire within two years. KraneShares may add additional offset markets in the future as they reach sufficient scale.
N-GEOs and GEOs are highly regulated carbon offsets that are vetted to ensure they satisfy stringent regulatory requirements such as the Verified Carbon Standard (VCS), Climate Community and Biodiversity (CCB) Standard, and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) criteria.
Investors in carbon offsets may be looking to benefit from the growing pressure placed on companies by various stakeholders to do more to mitigate their climate impact – according to CME Group, the voluntary carbon offset market will need to scale by roughly 1500% in order to achieve global emission-reduction goals.
The strategy may also serve to enhance portfolio diversification as climate-focused investments typically act as differentiated and non-correlated sources of return that are not driven by the economic cycle.
The ETF may find an audience with investors due to its uniqueness as the existing suite of climate-related commodity ETFs focus on carbon credits – regulatory allowances that permit entities to emit a specific amount of greenhouse gas into the atmosphere. KraneShares’ Climate Investment suite includes several carbon credit ETFs, the largest being the $1.4bn KraneShares Global Carbon Strategy ETF (KRBN US) which comes with an expense ratio of 0.78%.
Commenting on the launch, Luke Oliver, Head of Strategy at KraneShares, said: “KSET is a timely expansion of the KraneShares Climate Investment suite which now covers both compliance and voluntary carbon markets. KSET’s addition to the suite gives investors holistic access to global decarbonization efforts and continues KraneShares’ leadership in the space.”
Jonathan Krane, CEO of KraneShares, added: “KSET is the first US-listed ETF to combine the top carbon offset futures markets into a single investable fund. We are pleased to offer KSET as a key addition to our growing climate suite.”