Apex Group were appointed as Administrator to provide corporate services to the Backing Issuer, Jersey Spark Change Jersey Issuer Ltd, for Spark Change Physical Carbon EUA ETC, a Carbon Security issued by HANetf ETC Securities plc.

A number of governments have established “regulated” or otherwise known as “compliance” carbon markets to reduce CO2 emissions over time. These organised carbon markets are a key component in the fight against climate change and the mitigation of the catastrophic effects of CO2 emissions on the planet. The European Union launched the world’s first Emission Trading System (“EU ETS”) in 2005 which operates on a ‘cap-and-trade’ principle also putting into practice the “polluter pays” principle. This requires businesses emitting CO2 to obtain carbon emission allowances from the EU ETS regulator to allow them to emit a certain amount of CO2. These allowances are issued by the regulator and sold via auctions or in certain circumstances handed out for free. Energy suppliers and industrial firms such as cement and steel producers are examples of companies that must comply with this regulation. These allowances are limited by a cap, which is reduced every year, to aid the decarbonisation of the EU. Each allowance gives the holder the right to emit:

  • One tonne of carbon dioxide (CO2), or
  • The equivalent amount of other powerful greenhouse gases, nitrous oxide (N2O) and perfluorocarbons (PFCs).

HANetf and SparkChange partnered to create the Spark Change Physical Carbon EUA ETC (“Carbon Security(ies)”); the world’s first – and still only – Exchange Traded Product that allows investors access to physical European Union Carbon Allowances (“EUAs”); These Carbon Securities, which are ultimately backed by physical EUAs, are listed on exchanges in London, Milan, Frankfurt and Mexico. The diagram below depicts the structure of this programme.

The Carbon Security is structured as an undated zero-coupon debt security issued by HANetf ETC Securities plc who in turn holds a note (“Backing Note”), issued by a Bankruptcy remote SPV in Jersey Spark Change Jersey Issuer Ltd (“Backing Issuer”). The Backing Note is backed by physical EUAs which are held in a Trading Account in the name of the Backing Issuer. The quantity of EUAs held by the Backing Issuer is equal to the units of Carbon Securities minus the total expense ratio.

Spark Change Jersey Issuer Limited is incorporated in Jersey and was set up for the sole purpose of issuing the Backing Note. Jersey was chosen as the domicile of choice because of its robust and high standard regulatory framework, its flexibility to market securities into the United Kingdom and the European Union. The Backing Issuer holds the underlying EUAs that ultimately back the Carbon Securities in its Trading Account and ensures that the Backing Note it issues to HANetf ETC Securities plc is kept in line with its physical holdings of the EUAs.

A Trading Account is a form of digital record of the EUA balances maintained in the EU Registry under the Registries Regulation. It is used to record the holding and transfer of EUAs in accordance with the EU Emissions Trading Scheme. The Backing Issuer’s Trading Account is maintained in the EU Registry with the National Administrator of the Grand Duchy of Luxembourg.

By holding the Carbon Securities investors can have an environmental impact and achieve potential returns – together at the same time.

The parties involved in the structure were:

  • HANetf is an independent ETF and ETC specialist working with asset management leaders to bring differentiated, modern and innovative UCITS ETF and physically backed ETCs exposures to investors via an independent white label platform.
  • SparkChange is a specialist provider of carbon data, analytics, insight and financial products empowering financial institutions to capitalise on the opportunities – and manage the risks – arising from the transition to a low-carbon economy. For more information on the world’s first Exchange-Traded Commodity physically backed by European carbon allowances, visit the SparkChange website.
  • Apex Group is a global financial services organisation and one of the largest fund administrators in the world. It provides administration and other services through its Jersey and Ireland offices.