BlackRock has launched a new low-carbon “transition” fund that will invest in decarbonising materials such as steel.
The world’s largest asset manager said it has set up a new BlackRock BFM Brown to Green Materials Fund for UK investors.
It said the fund will invest in companies involved in materials “essential for the low carbon transition”, as well as opportunities created by “decarbonising materials supply”.
This would make green steel a key target for investment. The steel industry notoriously produces more tonnes of carbon than the resulting steel as part of the industrial process.
It is thought the fund will target green leaders in the steel industry, a sector that is expected to command a price premium, with the understanding that it is still in its early phases of development.
Evy Hambro, 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 which 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.”
Modernising the steel industry is a major target for UK government investment.
The newly launched Steel Council has initiated a review of the UK’s steelmaking capacity and production technologies, and is expected to launch its strategy imminently.
According to industry minister Sarah Jones, the council is working alongside industrial majors such as Tata Steel and British Steel, and could invest £2.5bn in the sector through the new National Wealth Fund.
The World Steel Association’s 2024 report showed the global steel industry produced 1.92 tonnes of CO2 for every tonne of crude steel produced in 2023.
The emissions intensity of steel production has risen from 1.8 tonnes of CO2 for every tonne of steel in 2014, according to the association’s latest report.
If downstream emissions under scope 1 to 3 of carbon accounting rules are included then the industry’s emissions are predicted to be even higher.
The materials sector also includes metals and mining, cement, chemicals, and construction materials.
“As the transition to a low-carbon economy unfolds, the investment team believes that companies in these industries that are decarbonising are expected to benefit from a re-rating as their sustainability risks decrease, resulting in these companies commanding higher multiples,” Blackrock said in a statement.
“The investment team expect these companies to benefit from lower operational costs and lower decarbonising capital requirements versus higher carbon peers.”
The fund will invest under the ‘sustainability improvers’ label introduced under the UK’s sustainable fund disclosure regime.
This requires the fund to invest in assets that can improve environmental sustainability over time.
BlackRock’s own methodology requires it to ensure at least 70% of its total assets are invested in equity securities that contribute to its sustainability objective.
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