Exchanges are using their expertise in trading to help with the fight against global warming — both the U.K.’s London Stock Exchange (LSE) and the U.S.-based Intercontinental Exchange Inc. (ICE) are launching efforts to expand the use of markets to finance the shift to a lower-carbon economy.
The LSE announced that it’s developing a new market that will list carbon funds for trading, allowing funds that finance projects to reduce greenhouse gas emissions to be publicly traded on a transparent market — and enabling investors to buy into such funds, facilitating carbon mitigation.
“We anticipate that corporates and other organizations with long-term needs for carbon credits will become investors, using the carbon credits delivered by these vehicles — which may be issued as an alternative or additional dividend — to meet a portion of their offset needs,” the exchange said in a release.
Developing a market for these funds would also enable investors to diversify by gaining exposure to multiple funds that can also be augmented, and hedged, in the secondary market, the LSE suggested.
“Climate change is the most urgent challenge of our lifetimes. It is essential that the global capital markets, long the drivers of economic activity, are reoriented to act in service of the planet,” said Julia Hoggett, CEO of the LSE.
At the same time, the ICE announced that it plans to launch a new futures contract for carbon credits.
The new contract, which is subject to regulatory approval, is expected to launch in the first quarter of 2022 based on certified carbon credits. Each futures contract will be equal to 1,000 eligible credits, with each credit equivalent to one metric ton of greenhouse gas emissions, the ICE said.
“Environmental markets can help fund the cultivation and preservation of natural capital, and the new nature-based solutions futures contract will allow the market to value natural assets in the agriculture, forestry and other land use sectors,” said Gordon Bennett, managing director of utility markets at ICE.
The exchange’s benchmark unit, ICE Benchmark Administration (IBA), also announced the formation of a new committee to provide oversight of ICE’s activities in the carbon markets.
“Robust governance and oversight of ICE’s platforms in the voluntary carbon markets will help give buyers confidence that credits purchased through the futures contract have environmental integrity”, said Tim Bowler, president of IBA.