BlackRock’s latest fund – the BFM Brown to Green Materials fund – has become the first UK-domiciled strategy to adopt the Sustainability Improvers label under the Financial Conduct Authority’s Sustainability Disclosure Requirements (SDR), the firm confirmed as it announced the fund’s launch.
The fund seeks to meet client demand from UK wealth investors for local access to opportunities related to the transition to a low-carbon economy, the firm said. Specifically, it aims to invest in companies related to materials that are essential for the low carbon transition and opportunities created by decarbonising materials supply. The materials sector includes metals and mining, cement, chemicals, steel and construction materials.
This correlates with the requirements of the Sustainability Improvers label as, to qualify for the label, a fund must target a pre-defined sustainability objective to invest in assets that have the potential to improve environmental sustainability over time, determined by the potential of those assets to meet a robust, evidence-based standard.
In this case, the fund will apply BlackRock’s ‘SDR Improver Assessment’ methodology to the companies in which it invests. This methodology ensures that a minimum of 70% of the fund’s total assets are invested in equity securities that contribute to the fund’s sustainability objective and its use of an SDR sustainability improvers label.
According to BlackRock’s Thematics and Sectors team, as the transition unfolds, a number of the beneficiary sectors beyond renewables “may have been overlooked” and now present “attractive potential alpha generating opportunities”. Companies in the materials sector that are decarbonising are expected to benefit from a re-rating as their sustainability risks decrease, the team added, resulting in these companies commanding higher multiples. This could lead to lower operational costs and lower decarbonising capital requirements versus higher carbon peers.
The fund will be managed by Evy Hambro (pictured), Olivia Markham and Hannah Johnson in BlackRock’s Thematics and Sectors team, who manage the BGF Brown to Green Materials fund.
Hambro – who is also the global head of thematic and sector investing at BlackRock – said: “We are targeting what we believe to be an overlooked segment of the value chain for lower carbon technologies. Companies that are high emitters today, but that have credible plans to decarbonise, could offer a significant investment opportunity. As the theme broadens out even further, these companies leading emissions intensity reduction efforts in their industries could benefit from a first-mover advantage as the low-carbon materials market develops.
“This strategy has been designed to provide clients with exposure to the Brown to Green Materials theme, recognising that what could drive share prices from here, and what could make a positive difference to the world, is what happens moving forward rather than what’s already happened.”
Markham – managing director and portfolio manager at BlackRock – added: “Materials companies that best navigate the ‘Brown to Green’ transition could benefit from a re-rating in the valuation multiples the market is willing to pay for them. We expect global adoption of lower carbon technologies will drive stronger-than expected demand growth for materials required faster than anticipated, and this will result in higher materials prices and better-than-expected earnings for producers.”
