Carbon trading: the big long

Time for a different hedge

In late 2006 I met with Deutsche Bank where we were shown the short mortgage trade, immortalised in the film ‘The Big Short’. The hairs on my arms stood up.

This was a much better hedge than any standard credit default swaps with a lower cost of carry and a much greater upside and eventually made us over ten times the capital at risk. The drawback: this trade inflicted enormous financial damage globally. Today, I am looking at another portfolio hedge that can make multiple returns, this time with the potential of benefiting our beleagured planet. Carbon will be the most important investment arena between now and 2030. It is essential to understand and prepare for it. Over the next three years businesses and investment managers will fac...