First European carbon ETF launched on LSE

ETF Securities, a provider of exchange-traded funds (ETFs), has listed the first European carbon ETF on the London Stock Exchange (LSE). ETFS Carbon was launched on 30 October, and offers investors access to the carbon emissions allowances futures market.

The fund will track the price of ICE ECX EUA Futures traded on London-based exchange ICE Futures, and will be based on a total return methodology that comprises the excess return from rolling carbon emissions allowance futures contracts annually plus a declared weekly interest rate based on Euribor. On the LSE, ETFS Carbon will trade in both euros (listed as CARB) and also in British pence (listed as CARP).

"Currently most investors cannot invest in carbon emissions allowance futures due to limited market access," says Nik Bienkowski, chief operating officer of ETF Securities. "But our response to this problem creates a practical and accessible answer for investors."

ETF Securities decided to launch the new product in response to increased demand from investors over the past six to 12 months, according to Bienkowski.

Bienkowski is wary of the negative impact that a potential global recession could have on the carbon markets, but it says the impact should only be short term. "The carbon price is shaped by supply and demand, if utilities receive less demand for their products they will need to pollute less, which might bring the demand for carbon allowances down," he says.