Industry Updates

WisdomTree carbon ETP tops $100m weeks after re-launch

Investors look to cash in on rising carbon emission prices

Theo Andrew

a large plume of smoke in the sky

WisdomTree’s carbon exchange-traded product (ETP) has attracted over $100m inflows since relaunching less than a month ago.

WisdomTree Carbon (CARB), Europe’s only carbon-focused ETP, returned to market on 27 August in flows as investors look to capture the recent upside in carbon emission prices. Its assets under management (AUM) now stands at $105m. 

CARB tracks the Solactive Carbon Emission Allowances Rolling Futures index which offers exposure to ICE Carbon Emission Allowances (EUA) futures contracts. It has a total expense ratio (TER) of 0.35%.

The price of EUA is up 76% year to date, according to data from Bloomberg and WisdomTree, as natural gas shortages in the US and low domestic European production contribute to an increase in coal-fired electricity production across Europe.

As a result, demand for carbon emission allowances has increased making it more expensive for companies to cover their carbon footprint, as well as a strong opportunity for investors.

Under the European Union Emission Trading Scheme (ETS), aimed at helping the EU achieve carbon neutrality by 2050, companies must hold enough allowances to cover their emissions from a limited supply each year.

Prices increases in allowances make it more expensive for companies to cover their carbon footprint, incentivising them to invest to help drive change faster.

Nitesh Shah, director of research at WisdomTree, said: “Investors have recognised the strong investment potential in EUA.

“The European Commission announced a legislative package in July which doubles-down on the ETS, giving scope to expand the programme and tighten the availability of allowances. Tighter allowances and greater demand are likely to price positive for EUAs.”

Initially launched by ETF Securities in 2008, CARB was forced to close in June 2020 after its swap counterparty, Shell Trading Switzerland, terminated the purchase agreement along with eight oil ETPs. At the time, the nine ETPs had a combined AUM of $550m.

This decision came following extreme volatility in oil markets with WTI trading below $0 a barrel for the first time in history in April 2020.

There are some differences between the old and new strategy. The newly-launched CARB will have two swap counterparties – Citigroup and Merrill Lynch – making it harder for the purchase agreement to be terminated. In addition, the old ETP did not track an index and was not fully collateralised.

Commenting on the re-launch, Bernie Thurston, CEO of Ultumus, said: “It is interesting to see the resurgence of this ETP. Effectively, it looks as though CARB was ahead of its time.

“This seems like a product whose time has come and it has been relaunched with a more solid structure behind it.”

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