John Kerry Backing Carbon ETF

KraneShares launched two socially responsible funds over the course of two days. Wednesday saw the debut of the KraneShares MSCI China ESG Leaders Index ETF (KESG), while Thursday marked the unveiling of the KFA Global Carbon ETF (KRBN), which has the support of former Secretary of State John Kerry.

KESG comes with an expense ratio of 0.59%, while KRBN carries an expense ratio of 0.79%. Both funds list on the NYSE Arca.

A Carbon Credit ETF

KRBN tracks an index of carbon credit futures contracts. The underlying benchmark is provided by IHS Markit Ltd. and Climate Finance Partners, which lists Kerry as the chairman of its advisory board.

"The climate crisis threatens life itself. Just as COVID-19 demanded an early response, so do the threats of climate disaster. One of the most powerful ways the world can collaborate to reduce emissions is to move toward carbon pricing that puts basic, free-market economics to work," said Kerry in a press release.

According to KRBN’s prospectus, the index includes carbon credit futures issued by cap-and-trade programs and maturing within the next one to two years. The represented emissions programs include the European Union Emissions Trading System, California Carbon Allowance and Regional Greenhouse Gas Initiative. The contracts must meet certain liquidity thresholds and there are caps on the size and  influence of both the geographic exposures and the programs represented.

The fund implements a Cayman Islands subsidiary to hold its futures contracts and is technically actively managed, though it has the goal of replicating the index’s performance, the document says.

The idea behind the fund is that it has the potential to establish a single "A comprehensive global price for carbon emissions at a substantial level could encourage rapid shifts of resources to lower carbon technologies and incentivize research and development of carbon capture and clean energy," said Robert Engle, another member of the advisory board and a recipient of the 2003 Nobel Memorial Prize in Economic Sciences.

"KRBN provides investors access to the carbon allowances futures market, which is vital to having the free market determine the price of CO₂ pollution," he added.

Although KraneShares is primarily known for its China-focused ETFs, given that China is the world's largest greenhouse gas emitter, representing more than a quarter of all emissions, it is still operating squarely in its wheelhouse with this fund. 

China ESG Leaders ETF

KESG evaluates all share types of securities representing Chinese stocks on three vectors, scoring them based on how they manage ESG-related risks and opportunities, evaluating them on their negative ESG impacts, and identifying those with significant involvement in any of the following business lines: alcohol, tobacco, gambling, nuclear power and weapons. Companies are excluded from consideration for the index if they do not meet the minimum ranking or scoring requirements for the first two elements and if they have significant involvement in any of the indicated business activities, according to the prospectus.  

Of the companies that remain eligible, the index methodology selects the securities with the highest ESG rankings for each sector until half of the market capitalization of that sector is represented, with minimum required coverage of 45%. The index is weighted by modified market capitalization to keep any single security from having too much influence, the document says.

Contact Heather Bell at [email protected]