Learn how to invest in the carbon credit market
The Brazilian market recently won the first investment fund in carbon credit. Vitreo Carbono is a multimarket fund available at BTG Pactual’s digital platform with a minimum investment of R$ €100.
Vitreo Carbono invests in assets from Europe, traded in euros. According to the manager, there is a potential market for this type of investment. In May 2018, the credit price (1 credit is equivalent to 1 ton of carbon emission) was €16.06. In April 2021, the price of credit exceeded € 46. This is an appreciation of more than 187% in just under three years.
The European market is the world's first major carbon market and operates in all European Union countries plus Iceland, Liechtenstein, and Norway.
According to Vitreo, the EU ETS (European Union Emissions Trading System) accounts for about 75% of the global carbon emissions market in volume of business and about 85% of its market value.
George Wachsmann, founding partner and CIO of Vitreo, explains that the valuation of recent years is because the European carbon credit market is regulated and based on tight supply and forced demand.
This means that participants in this market must necessarily trade: those who receive subsidies (or credits) can either hold them for future needs or sell them to those who need to buy. And those who must buy pay more and more as time passes.
In other words, those who emit more CO2 are forced to buy more credit and pay an even higher price. On the other hand, if a company reduces its emissions, it receives carbon subsidies, which can be kept to cover its future needs or can be sold to another company that lacks subsidies.
The executive also explains that by investing in Vitreo Carbono, the investor is exposed to European carbon futures contracts, ICE ECX Emission, traded on the electronic platform ICE Futures Europe, known as the ICE Platform. Therefore, this is an investment in euro.
Vitreo Carbono has a management fee of 0.9% per year and a performance fee of 10% on which it exceeds the 5% return in euros in one year.
Even younger than Vitreo Carbono is the Trend Carbon Zero FIM, launched by XP in 2021. The fund also works with global carbon credit market and replicates the performance of the Krane Shares Global Carbon (KRBN) ETF (stock-listed fund).
KRBN has a management fee of 0.79% and follows the IHS Markit Global Carbon Index, composed of carbon credit futures contracts on the US and European stock exchanges. Trend Carbono Zero does not have currency exposure.
Sustainable assets on the rise
A recent BlackRock study showed that 54% of the 425 investors surveyed in 27 countries consider the ESG agenda critical to investment processes and results.
In addition, respondents plan to double their sustainable assets under management in the next five years – going from 18% on average today to 37% on average in 2025.
Why invest in carbon credits?
– It's a sustainable investment
– It has the prospect of attractive returns, as there is a growing demand for the decarbonization of the global economy
– With the demand for carbon credits on the rise, the trend is that this will be reflected in prices
– It is an opportunity for portfolio diversification