Benefits of Diversified Carbon Portfolios

By Oktay Kurbanov, Partner at Climate Finance Partners (CLIFI)

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Exposure to carbon allowances has become an increasingly more common component within investor portfolios, driven by the asset class’ strong performance and pure climate impact. This paper discusses investment considerations that should go into this decision, providing insight into how investors can diversify and optimize their carbon allocations for a better risk/return profile and ensure greater portfolio efficiency. The analysis focuses on two major cap-and-trade markets, the European Union carbon allowances (EUAs) and California carbon allowances (CCAs), with background on the opportunities within each market as well as the historical and forecasted risk and return characteristics of allocating toward both within a portfolio.

Investors can access the carbon cap-and-trade markets through the KraneShares Global Carbon Strategy ETF (KRBN), which tracks the four most traded carbon credit futures contracts. 

Diversification does not ensure a profit or guarantee against a loss.

Any forward-looking analysis of returns for CCAs and EUAs are not forecasts of any fund’s future performance.

For KRBN standard performance, top 10 holdings, risks, and other fund information, please click here.