Carbon credits are either purchased by companies or issued free of charge by governments and allow firms to generate emissions to a certain extent.
If they don’t use up their allowances, companies can trade their unused carbon credits on exchanges to other companies that may need higher levels. For example, Tesla reported that it sold US$354 million of carbon credits in the second quarter of 2021.
Retail investors can invest in carbon credits through specialized ETFs, although there are other trading options.
John Wilson, co-CEO and managing partner at Ninepoint Partners, told Wealth Professional that there are three reasons why investors might want to invest in carbon credits: portfolio diversification, potential for returns, and the ability to drive change.
The institute aims to advance how the global investment community addresses climate change using investment expertise and partnerships.