The Commonwealth Bank of Australia (ASX: CBA) share price is trading lower on Monday. The move comes as Australia's biggest bank highlights the potential market opportunity in the supply of carbon credits.
At the time of writing, shares in the bank are commanding a price of $104.01, down 0.42%. This puts the CBA share price at a gain of 24.7% since the beginning of 2021. For comparison, the S&P/ASX 200 Index (ASX: XJO) is up 9.5% year-to-date.
CBA share price stumbles on Australia's green future
Carbon offsetting is a booming business globally as government initiatives are put in place to secure a low emission future. According to German bank Berenberg, the offset market has more than tripled over the past three years.
Although estimates indicate the current market is still relatively small, forecasts have the addressable market size sitting at $200 billion by 2050.
As such, CBA is taking notice of the potential market opportunity ahead. Commonwealth Bank of Australia's head of institutional banking and markets Andrew Hinchliff believes Australia holds vast prospects for becoming a significant supplier of carbon credits.
In explaining, Hinchliff outlined that environmental, social, and governance (ESG) issues were positioned as the second-highest priority for institutional bank customers. This is behind the impacts of COVID-19 and its burdensome supply chain effects.
The building pressure from shareholders and governments to operate in a more sustainable manner has meant many companies have implemented some form of emission reduction targets. Consequently, the demand for carbon credits is rising as these companies look for ways to offset their emissions.
As a result, Hinchliff considers Australia to be well placed for this growing trend, stating:
We think Australia's got a unique opportunity – just based on our natural resources being land, soil, sea, wind and solar – to be a significant supplier of carbon credits not only to Australia but also into the world which is a big opportunity for our clients.
A slice of the pie
Today, Australia's biggest bank by market capitalisation is putting its money where its mouth is. In a release, CBA revealed a partnership with Xpansiv to develop Australia's voluntary carbon market. Xpansiv is a global marketplace for ESG commodities, enabling increased liquidity and efficiency where it has traditionally lacked. Despite this, the CBA share price is being sold off at the start of the week.
According to the release, the bank has invested $15 million in Xpansiv through the agreement. The platform plans to launch trading of Australian Carbon Credit Units (ACCU) next year. These will be issued by the Clean Energy Regulator, representing one tonne of carbon dioxide equivalent stored or avoided, which can be used to offset emissions.
Furthermore, Xpansiv chief commercial officer Ben Stuart stated:
We anticipate Australia's voluntary carbon market will grow quickly in both size and trading volumes given the country's position as one of the world's largest producers of natural resources.
Our partnership with CBA signals the bank's intention to play a leading role in supporting the development of carbon market infrastructure and will significantly accelerate the development of our client offering.
Additionally, the banking giant unveiled its latest feature for customers on Tuesday last week. CBA customers will be able to track their carbon footprint directly in the CommBank app. This is made possible through a partnership with fintech startup CoGo.
These two recent partnerships clearly highlight CBA's endeavour to capitalise on the green transition. However, the company still hasn't won over climate activists at Market Forces. Despite its partnerships, Market Forces claims the bank's current plan aligns closer to reaching net-zero by 2070, rather than 2050.
Finally, the CBA share price is up 51.7% over the past 12-months.
