EUA carbon emissions permit ETF launches in Hong Kong

The Hong Kong-based fund arm of China International Capital Corporation has launched the first carbon futures exchange traded fund in the greater China region.

China International Capital Corporation Hong Kong Asset Management raised HK$100mn ($12.8mn) during the initial offer period for the listing of its new CICC Carbon Futures ETF on Hong Kong’s stock exchange, according to Lin Ning, managing director at CICC HKAM.

The ETF invests in the most liquid and representative ICE EU Allowance futures contracts by tracking the ICE EUA Carbon Futures index, which measures the performance of a long-only basket of EUA contracts.

The trading volume of the benchmark accounts for more than 90 per cent of the volume of all exchange traded EUA futures contracts.

This article was previously published by Ignites Asia, a title owned by the FT Group.

Every EUA is an entitlement to emit one metric tonne of carbon dioxide equivalent gas under the EU’s Emissions Trading System.

Established in 2005, the EU ETS is the world’s largest carbon market, with EUA notional trading in 2021 reaching €683bn.

CICC HKAM said the carbon market had low correlations with other asset classes, making it an “excellent choice to deliver portfolio diversification”.

The ICE EUA Carbon Futures index has generated an annualised return of 41.56 per cent in the past eight years, according to CICC HKAM.

“This new ETF will allow investors to access one of the largest, most liquid and most actively traded carbon markets in the world,” said Lin. The ETF launches with an estimated ongoing charges figure of 0.99 per cent.

CICC HKAM said the EU had put in place “aggressive mechanisms to tighten the supply of EUA and promote the effectiveness of EU ETS as a major tool to fight climate change”.

As of the start of 2021, the EU ETS covered 27 EU member states as well as Norway, Iceland and Liechtenstein, representing around 36 per cent of the EU’s greenhouse gas emissions.

The ETF launch comes after auditing firm PwC said in a recent report that Hong Kong was “one of the leading ETF markets” in the Asia-Pacific, with a “relatively diverse set of products and deep pool of liquidity”.

The report noted that the territory’s position as a gateway to mainland China and its “attractive legal, tax and regulatory” environment meant the territory was “well placed to be a significant centre” for the global ETF industry.

However, despite the “unprecedented growth” of the global ETF industry, “Hong Kong has by and large yet to reach its full potential”, PwC said.

*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com.

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