ETFs linked to ‘worthless’ carbon offset provider welcome scrutiny

Investigation into Verra found 90% of their rainforest carbon offsets worthless

Theo Andrew

Rain forest Amazon biodiversity

ETFs linked to the largest carbon offset provider Verra have “welcomed the scrutiny” of the sector after an investigation found more than 90% of its rainforest carbon offsets were “worthless”.

A Guardianinvestigation into Verra’s carbon standards published earlier this month found most carbon offsets used by some of the biggest corporations and ETF issuers were “phantom credits” which could in fact make global heating worse.

Linked to these are a handful of ETFs and exchange-traded products (ETPs) that either purchase carbon offsets from Verra in a bid to offset the index or track the market via futures contracts which include Nature-Based Global Emission Offsets (N-GEO) certified by Verra.

According to the report, only a handful of Verra’s rainforest projects showed evidence of deforestation reductions, with 94% of credits having no benefit to the climate, while a University of Cambridge study showed the threat to forests covered by the credits had been overstated by 400%.

There were also serious human rights concerns over some of the projects. According to the Guardian, it said it obtained video footage residents said showed their homes being cut down at a flagship Verra project in Peru.

White-label issuer HANetf, which runs the HANetf S&P Global Clean Energy Select HANzero UCITS ETF (ZERO), buys carbon offsets in a bid to neutralise Scope 1 and 2 emissions of the companies that make up the S&P Global Clean Energy Select index.

According to HANetf, 32% of its offsets are directed to a project categorised as forestry and land use while 68% is allocated to renewable energy.

A spokesperson for HANetf told ETF Stream that it “welcomes the Guardian’s scrutiny” of the industry to help ensure best practices are met.

“We welcome the Guardian’s scrutiny of carbon offsets as it helps to ensure that best practices are followed and that those using carbon offsets can remain confident in its validity,” it said. “The marketplace for carbon offsets brings this emerging sector to the forefront of investors’ attention. 

“The carbon offset market provides a financing tool for important projects globally. A large benefit of carbon offsets is that they help allocate funds to projects that otherwise would not have been funded if there was not a market for the offsets in the first place.

“Organisations such as Verra and Gold Standard provide trust to buyers like us that projects are having the impact that they are.”

Elsewhere, the US-listed KraneShares Global Carbon Offset Strategy ETF (KSET), which tracks the S&P GSCI Global Voluntary Carbon Liquidity Weighted index, includes Verra-accredited projects within its futures contracts.  

Commenting on the investigation, Luke Oliver, managing director at KraneShares, said it was important to “shine a light” on the issues in a bid to “shake out the inefficiencies and the problems with the market”.

“The concept of offsets is absolutely solid,” he said. “It is important this market survives, works and flourishes. The criticism, whether right or wrong, is needed to refine the market so I welcome the scrutiny and ultimately it will drive us in the right direction.”

A third ETP, run by Deutsche Digital Assets (DDA), said it was implementing a Verra-accredited carbon offset initiative in November 2021 for its DDA Physical Bitcoin ETP (XBTI).

DDA did not respond to a request for comment.

Verra has strongly refuted the Guardian’s report, stating that the conclusions are incorrect and questioned the methodology. It also pointed out their projects have helped billions of dollars to be channelled into preserving forests.

The almost $2bn voluntary offsets market has been growing rapidly in the last few years, however, support for the ETFs using carbon offsets or tracking the futures market has remained small.

For example, ZERO has amassed $5.6m assets under management since it was launched 18 months ago, while KSET, which launched in April last year has $2.3m AUM.

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