BlackRock fund targets greening of materials sector

By Clara Denina and Simon Jessop

LONDON (Reuters) – BlackRock (NYSE:) on Tuesday launched the “Brown to Green Materials Fund” targeting undervalued carbon-intensive companies that produce the raw materials and products driving the energy transition.

Investors are increasingly focused on what actions companies in industries such as metals and mining, cement, and construction, are taking to decarbonise, as the sectors produce over 17% of global greenhouse gas emissions.

Growing demand for lithium, and other metals critical to the green energy transition is poised to benefit the earnings growth of companies throughout the supply chain from mine to end-product, should the adoption of lower carbon technologies exceed expectations, BlackRock said.

Those companies that produce the materials and have a quality plan to decarbonise – and their suppliers – should re-rate as their margins get a boost and sustainability risks decrease, it said.

The fund manager screened index provider MSCI’s All-Country World Index for the world’s highest emitting companies that are likely to see rising demand as a result of the transition over the next 10-20 years, selecting those with the technology and finances to implement changes in a realistic timeframe, said Evy Hambro, BlackRock’s global head of Thematic and Sector Investing.

“This broad materials universe is trading at such (a) large discount relative to the broader market and growth opportunity,” based on how they have historically been viewed, he told Reuters.

“Once people understand that these businesses are becoming increasingly green in their production processes, it is likely that the discount that is applied to them is going to reduce.”