The World Carbon Fund
If climate change is to be tackled and Paris Agreement targets met, then the price put on carbon emissions needs to rise substantially over the next 5-10 years with many forecasting a price of $135/tonne vs c.$60 today.[1]
- Carbon Cap has completed ground breaking research into carbon as an asset class with an academic paper, an extract of this has been published by the CFA Institute and can be found here.
- The research highlights the strong returns generated from global carbon markets and the fact that carbon has exhibited very low correlation to traditional and alternative asset classes which we expect to continue.[1]
- These markets are highly regulated and very liquid, trading about $4 billion daily and more than $800 billion last year but remain dominated by end users which provides considerable opportunities for alpha generation.[1]
- These markets can exhibit volatility and this provides additional opportunities to add value in respect of risk management as well as implementing strategies that can benefit from this volatility.[1]
- Carbon has proven to be an excellent hedge for inflation as higher carbon costs are “passed through” to consumers. Academic research confirms this and in the current macro environment, inflationary hedges are attractive.[1]
- An allocation to the World Carbon Fund as part of a diversified portfolio can significantly reduce the “carbon footprint” of that portfolio and may provide a “climate hedge” against climate risks in equity and bond portfolios.[1]
- Direct Climate Impact: Carbon Cap has committed 20% of performance fees to the purchase and cancellation of carbon allowances/offsets in order to have direct climate change impact.[1]
The combination of a favourable political tailwind, low correlation, inflation hedge and plentiful sources of alpha lends itself well to an actively managed approach for the World Carbon Fund.[1]