The KraneShares Global Carbon Offset Strategy ETF (KSET) is set to cease trading this month, citing a lack of investor interest following a significant drop in carbon prices within the voluntary carbon market (VCM). Alongside KSET, three other ETFs dedicated to China will also halt trading.
Exchange-traded funds (ETFs) play a crucial role as avenues for retail investors to access diverse asset classes, including equities and commodities. They offer exposure to companies involved in carbon markets, renewable energy, and climate-related initiatives. By investing in ETFs focused on carbon markets, investors can contribute to the transition towards a low-carbon economy while potentially reaping financial rewards. These ETFs also provide diversification benefits by encompassing companies across sectors engaged in combating climate change.
With the increasing significance of carbon markets in reducing greenhouse gas emissions, ETFs serve as an accessible and efficient investment tool for individuals seeking to integrate sustainability into their portfolios. Launched less than two years ago on the New York Stock Exchange amidst high expectations for VCMs, KSET aimed to grant retail investors access to carbon markets. KraneShares, renowned for its diverse ETF offerings, has been at the forefront of introducing innovative investment solutions to the market.
KraneShares has expanded its portfolio to include the KEUA (European Carbon Allowance ETF) and KCCA (California Carbon Allowance ETF), introduced in October 2021. Building on the success of previous ventures like the KRBN Global Carbon ETF launched in 2020, which provides exposure to carbon credits from the EU ETS, California’s CCA carbon credits, and the RGGI of the northeastern United States, KraneShares has demonstrated a commitment to offering unique and forward-thinking investment strategies. However, economic challenges shortly after KSET’s launch led to a decline in the ETF’s value, ultimately resulting in the decision to halt trading.
As depicted in the Trading View chart, the trading price of KSET has experienced a sharp decline. Starting at over $6 in March 7 of the previous year, the current price has plummeted to below $1, marking an 85% decrease in trading price. While KSET was the first ETF dedicated to voluntary carbon offsets, other similar funds have emerged since its inception. Krane has highlighted that its ETFs tracking compliance carbon markets, such as KRBN, KCCA, and KEUA, will continue to operate.
Luke Oliver, Krane’s head of climate investing, remains optimistic about the long-term potential of VCMs but acknowledges the current hesitance of investors to engage with VCMs through ETFs. He notes that investors are not yet ready to allocate to the VCM in this format and that refining their ETF offerings is an ongoing process. Oliver states, “We will continue to monitor the market closely.” The voluntary carbon market has faced scrutiny for questionable offsets provided by some projects, particularly during a challenging period last year when prices, especially for nature-based carbon offsets, were plummeting.
However, signs point to a positive shift this year, with reports indicating significant progress. A report from Viridos AI revealed that January 2024 witnessed more carbon credit retirements compared to the same period last year. Companies are now prioritizing credibility and genuine impact over merely purchasing carbon offsets. ETFs represent just one avenue to invest in carbon market assets, with various other investment vehicles available.
While the halting of KSET underscores current investor caution, it also signifies the evolving landscape of VCM investments. As the market matures and regulatory standards strengthen, opportunities for sustainable investing in carbon markets are expected to become more robust.
