订阅我们的 Insights 简报

我们的 "洞察 "提供金融和经济、社会或艺术幕后的信息、启发、惊奇和娱乐性洞察。每月一期的时事通讯为您提供最新信息。

可持续性

Carbon: poised to become the world's most traded asset class?

Michael Azlen, founder and CEO of Carbon Cap Management, explores the evolving role of carbon markets in shaping global climate agreements, while sharing his insights on innovative investment strategies and risk management opportunities.

日期
作者
Alastair Turner, CEO, Aspectus Group
阅读时间
5 minutes

A middle-aged man with dark grey hair, wearing a dark suit, white shirt and light blue tie
"Through its investment activities, the World Carbon Fund seeks to contribute directly to the reduction in global CO2 emissions," says Michael Azlen of Carbon Cap Management. © LGT/Oreste Schaller

Michael Azlen, your company specialises in carbon pricing and carbon emissions trading. How does that work?

Michael Azlen: Carbon Cap Management LLP currently manages the world's largest multi-market carbon fund, the World Carbon Fund. This fund invests globally in liquid and regulated carbon markets using exchange-traded futures and options, and physical carbon allowances; its objectives are to generate absolute returns with a low correlation to traditional asset classes and to have a direct impact on climate change.

Cap and trade systems - often referred to as emissions trading systems (ETS) - are regulated, liquid (the value traded is currently around USD 65 billion monthly) and transparent markets. ETS set emissions caps that decline annually to meet a policy target over time. This market-based solution provides environmental certainty in terms of the amount of emissions produced, whilst allowing the market to set the price. Carbon allowances equal to the emission caps are then either allocated or auctioned to emitting entities who may then trade these allowances between them. 

Allowance trading is a key benefit of ETS as it incentivises least-cost abatement, as firms with a low abatement cost will abate and sell their allowances to firms with a higher abatement cost. ETSs also provide entities temporal flexibility by allowing firms to "bank" allowances, holding them for use in the future compliance years. This mechanism to cap and trade emissions is now one of the preferred policy instruments in the world.

What are the primary risks associated with investing in compulsory carbon credits?

Policy and technology risks are two key risks that can disrupt investment activities within compliance carbon markets. As part of Carbon Cap's disciplined investment process, the investment committee actively monitors both the political outlook and impending legislative changes across all compliance carbon markets. The committee also monitors technological developments amongst compliance entities for reducing carbon emissions, such as the cost per tonne of carbon removal and other technologies capable of impacting abatement options available.

How do you mitigate these risks?

The carbon markets display a low level of cross-correlation and by maintaining positions across multiple markets, the impact of policy shocks or technological developments specific to a market are mitigated through holding a diversified portfolio. In addition, the World Carbon Fund is able to mitigate risk by increasing convexity to provide downside protection while still participating in price moves; reducing or closing exposure to a particular market, and where applicable, taking a short position to benefit from market drawdowns.

What strategies does Carbon Cap Management employ to ensure its investments contribute effectively to carbon reduction?

The World Carbon Fund invests in regulated carbon and environmental markets and as such, all instruments traded are related to curbing carbon emissions. The Fund holds Article 9 status under the EU's Sustainable Finance Disclosure Regulation (SFDR). Through its investment activities, it seeks to contribute directly to the reduction in global CO2 emissions. 

Placing a price on carbon emissions is the single most effective climate policy ever implemented.

In addition, Carbon Cap has committed to having a direct impact on climate change by using 20 % of the performance fees generated by the Fund to purchase and permanently retire carbon allowances and other CO2 emission reduction initiatives and activities. In addition to this quantitative commitment to sustainability and carbon reduction, we also focus on sustainability through stakeholder engagement and raising awareness in the asset management industry on the issues that surround climate change, including the role of the carbon markets as a successful policy tool with a strong track record of success.

A middle-aged man in a dark suit and white shirt stands at a lectern in a darkened room, speaking into a microphone in his hand
"Policy and technology risks are two key risks that can disrupt investment activities within compliance carbon markets," says Michael Azlen. © LGT

Critics argue that emissions trading is not enough to tackle climate change effectively and that direct regulatory measures are needed. What's your opinion?

Emissions trading is a regulatory policy and, along with carbon taxes, can be described as "carbon pricing". Placing a price on carbon emissions has been the single most effective climate policy ever implemented. Today, only about 25 % of global emissions are being priced, but this is set to rise dramatically in the coming years as many new countries have plans to launch regulated carbon markets or carbon taxes.

What do you see as the future of carbon management and trading, particularly in the context of global climate agreements?

The implementation of the Carbon Border Adjustment Mechanism (CBAM) by the EU is bringing climate ambition and carbon pricing to many new countries. The CBAM will charge a carbon tariff for all imported goods based on the embedded carbon footprint of each product, creating a level playing field for European manufacturers who are subject to the EU ETS carbon price. This provides a strong incentive for exporting countries to price carbon at home already and to collect those carbon pricing revenues rather than paying them to the European government in Brussels. As a larger share of major countries adopt emissions trading, we will see regional markets join forces. Eventually, a global carbon price will be created, but this may be ten to 20 years in the future. As an asset class, carbon has moved from being a monthly value traded at USD 10 billion per month five years ago to USD 60 billion per month today, and we foresee this passing USD 500 billion per month within ten years, eventually overtaking crude oil as the most heavily traded commodity on the planet.

About Michael Azlen

A middle-aged man with slightly grey mottled dark hair, wearing a blue suit, light blue shirt
© Photo courtesy of Carbon Cap Management LLP

Michael Azlen is the founder, CEO, and CIO of Carbon Cap Management, an alternative asset management firm operating in the global carbon and environmental markets. Since the beginning of 2018, he has been researching climate change and environmental investment with a deep focus on regulated carbon markets. This culminated in the authorship and publication of a full academic paper on carbon as a liquid and investable asset class. Based on this research, Michael formed Carbon Cap Management LLP and launched the World Carbon Fund in February 2020. The fund invests into multiple liquid and regulated carbon markets. The fund has generated strong uncorrelated returns and a direct impact on reducing carbon emissions.

Satellite image of a hurricane
可持续性

Will AI be the key to climate adaptation?

The market for climate adaptation is growing fast, also thanks to AI. But it also faces a number of challenges.
A man in a tie, jacket and glasses smiles friendly into the camera, a historic building in the background
金融知识

Dieter Helm: "A sustainable legacy - and future growth - are both possible"

Economist and environmentalist Dieter Helm believes that legacy and sustainability are inextricably linked. Each generation has a responsibility to pass on a world that's at least as good as, or a little better than, it inherited. And he's clear that our current way of life is unsustainable.
联系我们