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Report on Investment Opportunities in the Voluntary Carbon Market and Alignment with Sustainable Development Goals

The Voluntary Carbon Market (VCM) is in a nascent phase of development, yet it demonstrates significant potential for growth. With a transaction value exceeding $10.8 billion USD in 2023, the market is positioned for substantial expansion. Projections from the Taskforce on Scaling Voluntary Carbon Markets indicate that to achieve the climate objectives outlined in the Paris Agreement—a critical component of SDG 13: Climate Action—the VCM must expand by a factor of 15 by 2030 and 100 by 2050 from its 2020 baseline. This report outlines investment pathways for retail investors to engage with this market, thereby contributing to global sustainability targets.

Analysis of Investment Vehicles for Sustainable Development

For individual investors, several avenues provide exposure to the carbon markets. These options range in risk and their direct linkage to sustainability outcomes, particularly those concerning SDG 7 (Affordable and Clean Energy), SDG 9 (Industry, Innovation, and Infrastructure), SDG 12 (Responsible Consumption and Production), and SDG 13 (Climate Action).

1. Carbon-Focused Mutual Funds and Exchange-Traded Funds (ETFs)

   Investing through funds offers a diversified, risk-mitigated approach. These funds can be categorized by their level of exposure to carbon-related assets and their contribution to specific SDGs.

   • Low-Carbon Funds: These funds strategically exclude companies from high-emission sectors such as oil, gas, and coal, unless those companies have credible net-zero commitments. This investment thesis promotes SDG 12 by shifting capital away from unsustainable production models. Examples include the iShares MSCI ACWI Low Carbon Target ETF (CRBN) and the BlackRock U.S. Carbon Transition Readiness ETF (LCTU).
   • Green Thematic Funds: These funds concentrate on companies whose core business contributes directly to environmental solutions. This includes investments in electric vehicle manufacturers, renewable energy suppliers, and green technology firms, directly supporting SDG 7 and SDG 9. Examples include the iShares Global Clean Energy ETF (ICLN) and the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN).
   • Green Bond Funds: These instruments focus on fixed-income securities issued to finance projects with positive environmental impacts. Such projects often include renewable energy infrastructure or sustainable public transportation systems, aligning with SDG 9 and SDG 11 (Sustainable Cities and Communities). An example is the iShares Global Green Bond ETF (BGRN).
   • Carbon Futures Funds: These funds offer the most direct exposure by holding carbon credit futures. They directly track the performance of compliance markets, which are a primary policy tool for achieving the goals of SDG 13.

2. Direct Investment in Green Corporations

   Investing in the equity of publicly listed green companies provides a targeted method for supporting sustainable innovation. Many of these corporations, such as Tesla (TSLA) and First Solar (FSLR), are net-negative emitters and generate revenue from the sale of carbon credits. This business model creates a financial incentive for technologies that advance SDG 7 and SDG 13. The potential ratification of Article 6 of the Paris Agreement could create a unified global marketplace, enhancing this revenue stream and strengthening SDG 17 (Partnerships for the Goals).

3. Direct Market Participation via Carbon Futures

   Purchasing carbon credit futures, such as European Union Allowances (EUAs), offers direct exposure to the carbon markets. This advanced strategy allows investors to participate in the primary mechanisms that drive industrial decarbonization. Additionally, companies like Carbon Streaming Corporation (NETZ.NEO) focus on financing carbon offset projects, providing capital for initiatives that directly reduce or sequester emissions, thus making a tangible contribution to SDG 13.

Compendium of SDG-Aligned Investment Instruments

The following is a summary of selected investment instruments and their alignment with the Sustainable Development Goals.

• CRBN – iShares MSCI ACWI Low Carbon Target ETF

  Tracks a global index of low-carbon companies. By reducing portfolio exposure to carbon-intensive assets, it supports the principles of SDG 12 and SDG 13.

• GRN – iPath Series B Carbon ETN

  Tracks an index composed almost entirely of EU ETS carbon credit futures, offering direct investment in a key policy instrument for SDG 13.

• KCCA – KraneShares California Carbon Allowance ETF

  Provides direct exposure to California’s cap-and-trade program, a regional mechanism supporting SDG 13.

• KEUA – KraneShares European Carbon Allowance ETF

  Offers direct exposure to the EU’s Emissions Trading Scheme, directly aligning with the climate action objectives of SDG 13.

• KRBN – KraneShares Global Carbon ETF

  Provides blended exposure to major global compliance markets (EU, California, RGGI), diversifying investment across key policy frameworks for SDG 13.

• LCTU – BlackRock U.S. Carbon Transition Readiness ETF

  Invests in U.S. companies positioned to benefit from the transition to a low-carbon economy, fostering innovation in line with SDG 9 and SDG 13.

• LCTD – BlackRock World ex U.S. Carbon Transition Readiness ETF

  Invests in global (ex-U.S.) companies prepared for a low-carbon transition, promoting international progress toward SDG 9 and SDG 13.

• LOWC – SPDR MSCI ACWI Low Carbon Target ETF

  Similar to CRBN, this fund tracks a global low-carbon index, contributing to SDG 12 and SDG 13 by redirecting capital.

• NETZ.NEO – Carbon Streaming Corporation

  A royalty company that finances carbon credit projects directly. This model provides critical funding for projects that deliver measurable outcomes for SDG 13.

• SMOG – VanEck Low Carbon Energy ETF

  A green thematic fund focused on clean energy companies, providing targeted investment in support of SDG 7 and SDG 9.

• SPYX – SPDR S&P 500 Fossil Fuel Reserves Free ETF

  Tracks the S&P 500 while excluding companies with fossil fuel reserves, aligning portfolios with SDG 12 and SDG 13.

• BGRN – iShares Global Green Bond ETF

  Invests in investment-grade green bonds that fund environmental projects, contributing to sustainable infrastructure and cities under SDG 9 and SDG 11.

• GRNB – VanEck Green Bond ETF

  Tracks U.S. dollar-denominated green bonds, channeling capital toward environmental projects that support SDG 9 and SDG 11.

Analysis of Sustainable Development Goals (SDGs) in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 7: Affordable and Clean Energy
• SDG 9: Industry, Innovation, and Infrastructure
• SDG 11: Sustainable Cities and Communities
• SDG 12: Responsible Consumption and Production
• SDG 13: Climate Action
• SDG 17: Partnerships for the Goals

2. What specific targets under those SDGs can be identified based on the article’s content?

1. SDG 7: Affordable and Clean Energy

   • Target 7.2: “By 2030, increase substantially the share of renewable energy in the global energy mix.” The article directly supports this by highlighting investment opportunities in “renewable energy suppliers,” “clean energy companies,” and funds like the “iShares Global Clean Energy ETF (ICLN)” and the “First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN).”
   • Target 7.a: “By 2030, enhance international cooperation to facilitate access to clean energy research and technology… and promote investment in energy infrastructure and clean energy technology.” The article’s core purpose is to guide investors towards promoting investment in “electric vehicle manufacturers, renewable energy companies, biofuel companies, battery tech companies,” and other forms of clean energy technology.

2. SDG 9: Industry, Innovation, and Infrastructure

   • Target 9.4: “By 2030, upgrade infrastructure and retrofit industries to make them sustainable… and greater adoption of clean and environmentally sound technologies and processes.” The article discusses financing “sustainable, environmentally friendly projects” and investing in “green tech companies” and “waste recovery companies.” It also mentions the transition away from “dirty industries” like “oil & gas, coal, steel” towards cleaner operations.

3. SDG 11: Sustainable Cities and Communities

   • Target 11.2: “By 2030, provide access to safe, affordable, accessible and sustainable transport systems for all…” This is directly referenced with the example of a “municipal government… issu[ing] a green bond to help fund the development of a public transit system.”

4. SDG 12: Responsible Consumption and Production

   • Target 12.6: “Encourage companies, especially large and transnational companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycle.” The article mentions companies making “voluntary emissions reductions or even net zero pledges” and funds that exclude “dirty” industries unless they have made “net-zero commitments.” This encourages sustainable corporate practices.

5. SDG 13: Climate Action

   • Target 13.2: “Integrate climate change measures into national policies, strategies and planning.” The article is framed around meeting “the climate change targets set forth in the Paris Agreement” and discusses compliance markets like the “EU’s Emissions Trading Scheme” and “California’s cap-and-trade program,” which are policy-driven climate measures.
   • Target 13.a: “Implement the commitment undertaken by developed-country parties… to a goal of mobilizing jointly $100 billion annually… from all sources to address the needs of developing countries…” The article focuses on mobilizing private finance for climate action, detailing how the voluntary carbon market “surpassed $10.8 billion USD in transaction value in 2023” and needs to grow “15-fold by 2030.” This represents a significant mobilization of financial resources for climate mitigation.

6. SDG 17: Partnerships for the Goals

   • Target 17.17: “Encourage and promote effective public, public-private and civil society partnerships…” The entire mechanism of voluntary carbon markets described in the article is a partnership. It involves governments (through the Paris Agreement and compliance markets), the private sector (corporations buying credits, project developers), and civil society (retail and institutional investors) working together to finance climate action.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

1. SDG 7: Affordable and Clean Energy

   • Indicator: Amount of capital invested in clean energy funds and companies. The article implies this by listing numerous ETFs like “iShares Global Clean Energy ETF (ICLN)” and companies like “First Solar (FSLR)” as investment vehicles.
   • Indicator: Value of green bonds issued. The article mentions the “iShares Global Green Bond ETF (BGRN)” which tracks “investment-grade green bonds issued to fund environmental projects.”

2. SDG 9: Industry, Innovation, and Infrastructure

   • Indicator: Investment in green technology. The article suggests investing in “green tech companies,” “battery tech companies,” and “waste recovery companies” as a way to participate in the market.

3. SDG 11: Sustainable Cities and Communities

   • Indicator: Amount of financing directed towards sustainable transport. The article provides a specific example of green bonds being used to “fund the development of a public transit system.”

4. SDG 12: Responsible Consumption and Production

   • Indicator: Number of companies with net-zero commitments. The article states that some funds will only include “dirty” industry companies if “they’ve already made net-zero commitments.”
   • Indicator: Capital invested in fossil-fuel-free funds. The existence and promotion of funds like the “SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX)” serves as a measure of divestment from fossil fuels.

5. SDG 13: Climate Action

   • Indicator: Total transaction value of the voluntary carbon market. The article explicitly states this value “surpassed $10.8 billion USD in transaction value in 2023.”
   • Indicator: Growth rate of the voluntary carbon market. The article provides a forecast that the market needs to “grow 15-fold by 2030 and 100-fold by 2050.”
   • Indicator: Price of carbon allowances. This is implied by ETFs like “KraneShares California Carbon Allowance ETF (KCCA)” and “KraneShares European Carbon Allowance ETF (KEUA)” which “directly track the performance of their underlying carbon credits.”
   • Indicator: Revenue from corporate sales of carbon credits. The article gives a concrete example: “TSLA, for example, earned around $1.79 billion in revenue from carbon credit sales in California’s compliance market in 2023.”

6. SDG 17: Partnerships for the Goals

   • Indicator: Amount of private capital mobilized for carbon offset projects. This is measured by the business model of companies like “Carbon Streaming Corporation (NETZ.NEO),” which provides “capital to fund carbon credit projects.”

4. Summary Table of SDGs, Targets, and Indicators

Source: carboncredits.com