Investment giant BlackRock announced the launch of the BlackRock BFM Brown to Green Materials Fund for UK investors, a new fund aimed at targeting overlooked opportunities stemming from the transition to a low carbon economy in the materials sector.

The launch marks the first UK domiciled mutual fund to use the new “Sustainability Improvers” label introduced by the UK Financial Conduct Authority (FCA)’s Sustainability Disclosure Requirements (SDR).

The new fund builds on a similar strategy to BlackRock’s BGF Brown to Green Materials Fund launched for European investors in 2023. The new fund will be managed by Evy Hambro, Olivia Markham and Hannah Johnson, who also manage the BGF Brown to Green Materials Fund.

Hambro said:

“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.”

According to BlackRock, the funds come as a number of sectors, beyond renewables, stand to benefit from the transition to a low-carbon economy, but may have been overlooked by investors, creating attractive investment opportunities. The new fund will invest in companies related to materials that are essential for the low carbon transition and opportunities created by decarbonizing materials supply.

Hambro added:

“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 lowcarbon materials market develops.”

BlackRock said that it anticipates that companies in the decarbonizing industries in the materials sector – including metals and mining, cement, chemicals, steel, and construction materials industries – stand to benefit as their sustainability risks decrease, leading to higher multiples, lower operational costs, and lower decarbonization capital requirements relative to their higher carbon peers.

Markham said:

“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.”

The FCA’s SDR requirements were  introduced by the regulator to help investors assess the sustainability attributes of investment products, and to avoid greenwashing risk, to portfolio managers. The SDR included naming and marketing rules for investment products, requiring that sustainability-related terms can only be used in product names and marketing if a label is used.

The FCA rules introduce four labels intended to help consumers to differentiate between the sustainability objectives and investment approaches of investment products. These include Sustainability Focus, for products that aim to invest in assets that are environmentally and socially sustainable; Sustainability Improvers, investing in assets that have the potential to improve environmental and/or social sustainability over time; Sustainability Impact, investing with an aim to achieve a predefined positive and measurable environmental or social impact, and; Sustainability Mixed Goals, a newly introduced category for funds that invest across different sustainability objectives and strategies aligned with the other categories. The rules include a series of criteria for products to use the labels, including a requirement for at least 70% of the products assets to ordinarily be invested in line with the label’s objective, as well as ongoing product-level disclosures for products using a label.

BlackRock said that the new fund will utilize the firm’s proprietary “SDR Improver Assessment” methodology to assess companies that it invests in, ensuring that it meets the regulation’s 70% threshold for the use of the Sustainability Improvers label.