Net zero. Carbon neutral. Carbon offset. These terms are in many ways interchangeable and consistently part of a global dialogue around climate change, corporate responsibility, energy transition and even impact investing.
Most of what is written and heard are about projects as diverse as planting trees, cleaning up the oceans and alternative energy sources; all of these are part of the overall green (or blue) economy and the focus of billions of dollars of investment funds to deliver on the overall climate change agenda.
However, we also hear constantly about greenwashing, empty promises and even carbon colonialism; areas where supposed ‘investing for impact’ fails or is abused.
What is happening is almost less important than what is NOT happening. Failed investment is not confined to impact investing; of course private companies collapse and even large listed companies can fail spectacularly.
Public markets do have some control mechanisms built in around regular reporting and disclosure regulations (especially in Europe) but of course there is no perfect system.
There are interestingly perhaps only a few isolated examples of Shariah compliant companies (or those which are public but are screened for compliance) failing in the same numbers and with such spectacular falls as conventional companies.
Why is this?
Perhaps it is because of the nature of screening to consider both how companies conduct themselves and their intention to act in a particular manner, as much as the non-reliance on leverage for their financial management.
Perhaps there is an argument which says that a company which is included in a major global index like the FTSE Yasaar Global Shariah Index offers a better risk than one which is in a conventional equity index.
The use of an index for risk mitigation is particularly important for investors who want to access an asset class without the expertise to assess the individual risks of the assets (or investments) in the index.
The nature of an index with a specific set of filtering criteria and a transparent methodology takes the ego out of the investment decision-making and is part of the reason for the success of passive, index-tracking funds like the HSBC Amanah Global Shariah Index Fund.
Shariah compliant investors who want to access the asset class can have a view that will allow the regular review, compliance and auditability of an index to represent as best as possible the returns of the asset class.
If this is true, then what is the opportunity for investors who are concerned about net zero, climate change and energy transition, blue or green economy and impact? The XTCC Shariah compliant ecosystem offers precisely investors this choice.
For years, developers of the various forms of carbon sequestration or decarbonization projects have had a difficult time creating complete economic models.
Decarbonization projects have since 1997 been able to consider ‘carbon credits’ as a byproduct of the projects; these credits were supposed to represent a global instrument which could be traded, bought or sold to balance the impact of emitters (those that create CO2).
There is a term most know called the ‘voluntary carbon market’ or VCM but it does not exist. There is no market. You cannot find it. You cannot get a market price from it.
There has been a marketplace for carbon credits but it has been dysfunctional, fragmented and subject to abuse (carbon colonialism) — the reasons why it is interesting but less important than how to fix these problems.
Too many different organizations are trying to position themselves as the credible ‘market’, with no transparency on pricing, no interaction between them and no standards of disclosure. No wonder there are so many issues.
XTCC is not another market; there is no need. The stock market (like the global market for equities or more relevant commodities) already exists.
Everyone knows the price of gold yesterday because they can look it up. Why not do the same for carbon? It is important so transparency must exist to create confidence.
It is a new asset but it is not a new topic and it is important so how to capture the benefit of the overwhelming market drive for a net-zero world? The revolution? XTCC treats carbon credits like any other commodity. It is like the gold of the net-zero world.
Like other commodities, XTCC is Shariah compliant. Like other commodities, the price is quoted on the stock market (and Bloomberg and the usual data sources). Like other commodities, XTCC is a standardized investment contract which reflects the value of carbon credits.
When you invest in gold, you do not actually buy bars of gold (of course you can but it is not the easiest to manage); you buy a standard reference stock-market quoted financial instrument. You do not invest in a mining stock. You want the pure price of gold as a reference for your investment.
Yes, for Shariah compliance, the investment you buy must own actual, certificated gold bars and this transparency is important. XTCC follows the same roadmap to deliver to investors both a transparent and Shariah compliant investment.
Combine this with the macro view of how the market is going to grow in important, and XTCC offers a unique, Shariah compliant, green (and blue) investment opportunity.
XTCC Founder Dr Scott Levy is a leading expert in capital markets, green bonds, structured finance and Islamic finance
