Carbon credits as a hedge for transition risk

About this episode

Carbon pricing now covers nearly 28% of global greenhouse gas emissions, and schemes in the EU, UK, China and Australia keep widening. For investors, that turns carbon cost into a direct driver of portfolio value. Many can’t divest carbon-intensive holdings quickly, so they need other ways to manage the exposure.

This short audio brief draws on our Climate 101 guide to carbon credits.

What you’ll hear

The brief starts with the difference between permits and credits. A permit gives a company the right to emit one tonne of CO₂ under a compliance scheme. A credit represents a tonne reduced or removed elsewhere, often traded in voluntary markets.

It then covers how investors can measure exposure using Potential Carbon Liability (PCL), the value a portfolio could lose under a given carbon price path. Compliance permits rise in value as carbon prices rise, so holding them can offset part of that loss.

Credits can also be retired to improve a portfolio’s temperature alignment. A single credit can’t do both. It is either held as a hedge or retired.

Read the full guide

The Climate 101 guide covers carbon markets in more detail, including a case study with Apostle Funds Management.

Read the guide