KraneShares’ latest addition to its suite of carbon market ETFs is the first in the U.S. to offer exposure to carbon offset futures, marking a departure from existing carbon credit funds.
The KraneShares Global Carbon Offset Strategy ETF (KSET) debuted on the NYSE Arca Wednesday, charging an expense ratio of 0.79%.
KSET is the first U.S. ETF to hold liquid contracts of Global Emissions Offset (GEO) and Nature-Based Global Emission Offset (N-GEO) futures on the Chicago Mercantile Exchange. Those contracts are backed by carbon offsets issued by governments or regulatory bodies to projects that represent a reduction of emissions as opposed to what the emissions would be if the project were not built. The groups in charge of the decarbonization project can then sell those registered offsets to people and companies voluntarily reducing their net emissions.
The N-GEO contract represents offsets issued from nature-based strategies like reforestation projects. GEO contracts are backed by CORSIA-compliant offsets that aim to zero out the airline industry’s carbon footprint.
These differ from carbon credits tracked in the iPath Series B Carbon ETN (GRN) and the KraneShares Global Carbon Strategy ETF (KRBN), which allow businesses to make emissions in regulated markets like the European Union or the combined California-Quebec market.
Luke Oliver, KraneShare’s head of climate investing, believes that while carbon offsets aren’t strictly required for a company to do business, pressure from stakeholders will drive demand and returns on tow for the contracts.
“It’s not entirely voluntary. [Companies] are doing this under demand from their shareholders,” he said. “The growth of ESG, for example, is a great incentive for companies to reduce their carbon footprint.”
ProShares also has a carbon offset filing that became effective and ready for launch last week.