ESG-inclusive commodities such as carbon offsets and water will see strong growth in 2021, according to exchange Xpansiv.
Xpansiv is a commodity marketplace for ESG-inclusive commodity products and price information, and its main business units include XRegistries, XMarkets, and XSignals.
"We're the infrastructure to support the integration of ESG-inclusive commodities into the broader commodity complex, in terms of derivatives and price data information," said Joe Madden, Xpansiv CEO.
Xmarkets enables trading of renewable energy, carbon offsets, water and other ESG-inclusive commodities, while XSignals gathers the data to the traded commodities to provide more detail on what has gone into creating them.
"If we think about where the ESG-inclusive commodities markets are today and where they have to get to, I'd say this is like the early days of petroleum markets when kerosene was the only fuel," Madden said. "That said, there are billions of dollars of registered assets in the form of renewable energy or carbon offsets to date, and they've been subject to fragmented marketplaces. We're focused on enabling a scalable, low barrier to entry and a common access point for all manner of ESG inclusive commodities."
Madden predicts strong growth in the ESG-inclusive commodities markets, as increasing numbers of entities are making net zero commitments that may require using derivatives and other commodity-based financial instruments to meet. From November 2019 to November 2020, trading on its platform grew by more than 172%, according to the company.
"Markets are tracking net zero commitments," Madden said. "You have a commitment, how are you going to meet it? It's not just marketing material - they're real commitments. We see that as the real driver here as to how you start to enable these new markets."
As additional ESG-based commodities are developed, they can be added to Xpansiv's infrastructure.
"The platform is designed to be extensible so you can add registries to the marketplace," he said. "There are certain registries that are designed for certain types of products, and these can be integrated into the platform. When you have a set of buyers and sellers that are versed in those types of products, and that's what we see in the intermediary space, their trading desks become more and more ESG focused, and they're looking at that as an area of growth."
Xpansiv has raised a round of more than $35 million of pre-IPO funding, which Madden noted will be used to continue to build out the business and increases product. Media reports note that Macquarie and BP's venture capital arm are investors in the company.