New ETFs offer exposure to carbon credit market

Toronto-based Horizons ETFs Management (Canada) Inc. and Ninepoint Partners LP are launching Canada’s first products that offer investors exposure to carbon emissions allowance futures.

The Horizons Carbon Credits ETF will start trading Thursday on the Toronto Stock Exchange, the firm said Monday. The Ninepoint Carbon Credit ETF is expected to start trading on the NEO exchange on Feb. 16, while a mutual fund version will be available on Fundserv.

The funds are the first in Canada to provide exposure solely to carbon credits, which are used to offset emissions. The funds will invest in carbon emissions allowance futures, which apply in jurisdictions with cap-and-trade regimes such as Europe and California, where polluters offset their emissions by buying allowances. In Europe, for example, one allowance entitles the holder to emit one ton of carbon dioxide or carbon-equivalent greenhouse gas. The bet is that allowances will become more expensive as governments impose restrictions to limit emissions, therefore increasing demand for offsets.

Horizons and Ninepoint said the products allow investors to hedge against climate change transition risks while offering diversification in a non-correlated asset.

Similar carbon credit products already exist in the U.S. Other products in Canada, including one from Ninepoint, use carbon credits to offset the greenhouse-gas emissions of companies held in their portfolios.

The Horizons ETF will seek to replicate the performance of a proprietary index based on the daily returns of the settlement price for European Union Allowance (EUA) emission futures contracts.

Ninepoint’s funds will invest more broadly, including EUA futures as well as credits from California and the northeastern U.S.

Horizons’ ETF will seek to hedge any non-Canadian dollar exposure back to the Canadian dollar, while Ninepoint will offer a U.S.-dollar version.

The management fee on both ETFs will be 0.75%. Ninepoint’s mutual fund management fees will range from 0.55% for Series SF to 1.75% for Series A. Both products will have a high risk rating.

Staff

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