Canada may be parodied for its supposedly tense politeness and stilted banking culture, but when it comes to the country’s stock markets, the Great White North has behaved more like the wild Wild West.
Take the last example. A growing number of start-ups are selling carbon credits, speculative vehicles that many mainstream investors still view with suspicion. What are Canada’s indices saying? They are Uh-Okay.
It’s either make believe or maple leaf
According to bank officials who spoke with The Wall Street Journal, about a dozen carbon credit start-ups are lined up to list their shares on Canadian stock exchanges. Carbon credits are tradable permits that companies can buy to offset emissions. The credits fund new technologies as well as the preservation or expansion of environmental reserves – approaches that help combat climate change.
Carbon credit trading is a stable market valued at hundreds of millions of dollars, but a significant concern remains: Climate finance consultants, experts and environmental groups have suggested that carbon credits either don’t provide the amount of promised carbon reductions either end up funding an experimental technology that leads nowhere. Companies then claim credit for an activity that does little for the environment, what critics call greenwashing.
This is precisely why carbon credits are still considered by many to be both speculative and dubious. Which brings us to Canada, a country whose markets have been surprisingly open to industries and companies that might not pass a full background check.
- After Canada legalized marijuana in 2018, Canada’s five largest cannabis companies hit a valuation of $40 billion on the promise of a massive new speculative market. They have since lost more than half of their value.
- Speculative concerns are already materializing. Base Carbon, which listed on Toronto’s NEX stock exchange last month, is down 30%. Carbon Streaming Corp, which was listed last year, is down 60% since December.
“We need a lot of capital to develop these carbon reduction projects which by their nature involve a lot of risk,” said Josh Crumb, founder of Base Carbon and former commodity strategist at Goldman Sachs. WSJ. “That’s why we are listed in Canada. You need speculators to invest.”
If Past is Prologue: Evidence suggests that regulatory scrutiny of the carbon credit market could stir up trouble. According to the Global Sustainable Investment Alliance, after the EU introduced anti-greenwashing rules, the European sustainable investment market shrank by $2 trillion between 2018 and 2020.