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Should Carbon Credits ETFs Count as ESG Funds?

“These ETFs are tied to carbon credit futures, which means they are betting on the future growth of the carbon credit market,” says Dustin Lange, former CEO of the Responsible Investment Association. (pictured above, left).

According to Lanz, the carbon credits market is worth about US$850 billion today, and some analysts predict it could exceed US$22 trillion over the next 30 years. He says this growth will come on the back of projected growth in compulsory and voluntary carbon markets, in which the former will be a place for polluters to buy and trade the right to emit carbon into the atmosphere.

“So, do these ETFs provide investors with exposure to companies or entities that are reducing emissions? No,” says Lange. “Does investing in these products actually reduce emissions in any way? ? No.”

However, the question of whether ETFs are responsible or fall under the broad umbrella of ESG investing is less straightforward.

Because they provide investors with exposure to a climate-related topic expected to undergo substantial growth in the coming years, Lanz says they arguably represent a thematic investment in a climate-related topic. However, he adds, the fact that ETFs invest in carbon credit futures, rather than companies actively involved in reducing emissions, means their impact should not be overstated.

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