Three financial industry veterans have invested in the environmental derivatives platform IncubEx, the latest sign of growing trade in instruments such as carbon contracts that allow companies to offset pollution.
Entrepreneurs Michael Spencer and Lance Uggla, as well as former Deutsche Börse CEO Carsten Kengeter, have invested in a $ 11.7 million fundraiser from IncubEx, a developer of financial contracts in environmental markets, ahead of an expected public offering in London this year.
Spencer, who founded inter-dealer broker ICAP, and co-founder of financial data firm Markit Uggla, joined hedge fund Kengeter and Lansdowne Partners in raising capital. The five-year-old company IncubEx is valued at $ 161 million in fundraising.
IncubEx was developed by the management team that founded Climate Exchange, which operates the carbon trading platform, and was sold to the US operator Intercontinental Exchange for £ 395 million in 2010.
Climate-related derivatives have a controversial track record, with investors largely avoiding them as tradable assets since the surge in interest a decade ago.
But IncubEx’s ambition is fueled by the growing demand for carbon contract trading. Companies and their investors are putting increasing pressure on companies to drastically cut their emissions in the coming decades. Countries pledged to cut their emissions in the Paris Agreement on Global Warming.
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The price of carbon dioxide quotas in the EU has more than doubled from pre-pandemic levels on the flagship carbon trading platform, in part because traders expect supply cuts in the coming years.
IncubEx develops climate change related contracts that will allow companies to buy and sell carbon. He has developed many environmental futures and options contracts for EEX, owned by Deutsche Börse. These include the emissions trading markets in the EU and California.
In addition, there are more niche futures and options contracts behind it, such as those that will enable companies to comply with European wood pellet regulations and US interstate air pollution regulations.
IncubEx Chairman Neil Eckert, former CEO of Brit Insurance and founder of Climate Exchange, said environmental goods could become one of the world’s largest tradable asset classes.
“The starting point is legislation. The real trigger is the political agreements established by Paris. It’s incredibly rewarding that America is back in Paris, ”he told the Financial Times. “Only about 5 percent of the world’s carbon footprint comes from carbon trading schemes. Shipping and aviation are the last two areas that have come under the law. Then it will be transport. “
IncubEx has a revenue sharing agreement with EEX based on the volume of trade in its contracts.
Eckert also said the company is considering listing on the junior stock exchange in London. “We are considering all options, but most likely it will be an AIM listing later this year,” he said.
Trading on ICE’s carbon platform has doubled in the last five years to 2020, and last year it processed over 12 million carbon futures and options, the equivalent of 12 billion credits or 12 gigatons of carbon.
Earlier this year, CME, which operates the Chicago Futures Exchange, began trading the world’s first futures contracts tied to the California water price.