China’s first exchange-traded fund for carbon credit futures debuts on Hong Kong’s stock exchange

The CICC Carbon Futures ETF debuted on Hong Kong’s stock exchange on Wednesday
It invests in the futures contracts of carbon emission permits traded in the European Union

ESG investing

Eric Ng

Published: 6:41pm, 23 Mar 2022

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The Hong Kong asset management arm of China International Capital Corporation, one of the nation’s largest investment banks, has launched the first carbon credit exchange traded fund (ETF) in China.

The CICC Carbon Futures ETF, launched by CICC HKAM, debuted on Hong Kong’s stock exchange on Wednesday. It invests in the futures contracts of carbon emission permits traded in the European Union.

These contracts are traded on the Intercontinental Exchange (ICE) in the United States, which has a 90 per cent share of the global carbon futures market, Lin Ning, managing director of CICC HKAM, told reporters on Wednesday.

The ETF product tracks the ICE EU allowance carbon futures index, which generated an annualised return of 41.5 per cent in the past eight years.

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“The index exhibits low correlation with other asset classes and hence is an excellent choice to deliver portfolio diversification,” Lin said. “It is also the most actively traded carbon futures [market] globally, offering investors liquidity, transparency and convenience.”

The carbon futures ETF closed on the first trading day 2.6 per cent higher at HK$70.08. Some HK$1.7 million of trading volume was recorded.

EU ETS is the world’s largest carbon exchange, with last year’s trading volume of €683 million (US$751 million) accounting for 90 per cent of emissions traded. The trading scheme covers 36 per cent of carbon emissions in the EU.

The ICE EU carbon futures index has doubled in price to around €80 in recent years, because of limited supply and higher demand from polluters to offset their carbon footprints. The recent surge in oil prices sent it down from €94.7 on February 23, just before the start of Russia’s invasion of Ukraine.

Higher oil and gas prices have boosted the cost competitiveness of low-carbon energy and reduced demand for carbon offsets, said Zhao Yang, managing director of the CICC Global Institute.

However, in the long term, carbon prices will rise as governments tighten emission standards, reduce quotas and impose higher carbon taxes to meet environmental goals, he said.

Having slashed its greenhouse gas emissions by 31 per cent in the past three decades, the EU is aiming to cut them by 55 per cent by 2030 compared to 1990 and achieve net zero emission by 2050 to fight climate change.

CICC’s product is the latest in a string of carbon credit-linked ETFs. Eleven have been listed for public trading in the US, South Korea, Ireland and Canada in the past four years, according to funds researcher Morningstar. Their combined fund size amounts to around US$2 billion.

Launching China-related carbon credit investment products is CICC’s “next step” after the EU market-based product, but it has no timetable as this will depend on liquidity and market acceptance, Lin said.

Separately, Hong Kong-listed China Carbon Neutral Development Group said on Wednesday it will use blockchain technology to issue its first carbon-asset NFT collectible product.

It will be marketed as a quicker and more efficient way for buyers and investors to get hold of carbon credit products compared to the existing over-the-counter voluntary carbon markets overseas, said vice-president Charley Tsai.

Additional reporting by Georgina Lee

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