S&P which is creating new sustainability indexes is now moving into rating Carbon Funds.

“We’re seeing people come to us for views on how carbon caps and carbon trading are affecting companies’ credit quality,” Wilkins said. “Over the past couple of months, we’ve had some unsolicited enquiries from carbon funds for ratings.”

Wilkins added that the company is currently devising a methodology for rating funds. However, he expects that S&P will look at the underlying emissions reduction projects in which the funds are investing and possibly at the creditworthiness of companies developing the projects.

While S&P rates some investment funds on their financial performance, carbon funds would instead most likely be assessed on their creditworthiness, combining their probability of default with likely loss recovery to generate an expected loss figure, said Wilkins.

An example of a Carbon Fund can be found here (Download-PDF).