QUESTION OF THE WEEK

How do you see carbon-intense companies?

Every other week, we ask for your thoughts on a top question our portfolio managers and strategists are debating. We share the final poll results and our insights.  

    Sustainable investing is booming, with low-carbon and technology companies as favorites. Where does that leave industries such as oil, gas, steel, cement, chemicals and agriculture? Their business models are likely to be disrupted to achieve governments’ ambitious net-zero goals.

    #QuestionOfTheWeek: How are you thinking about carbon-intense companies from an investment perspective?

    • Sustainability first (40%)
    • Intrigued (35%)
    • Stranded assets (21%)
    • Don’t care (4%)

    Source: Blackrock Investment Institute, with data from SurveyMonkey. Note: Data does not include results from BlackRock social media polls.

    Poll results

    Public poll responses were almost tied between “Sustainability first” (40%) and “Intrigued” (35%). Another 21% voted that carbon-intense companies look like stranded assets from an investment perspective and 4% of respondents selected “Don’t care”.

    On the contrary, most BlackRock portfolio managers (79%) voted that they were still “Intrigued” by carbon-intense companies from an investment perspective, while 8% voted for “Stranded assets”. One in 10 selected “Don’t care”.

    Getting to net zero

    A portfolio manager from the BlackRock Global Fixed Income team viewed U.S. infrastructure spending as pumping up investment flows into companies that score high on Environmental, Social, and Governance metrics (ESG). The view in the Systematic Active Equity team was that carbon-reduction efforts in high-emitting industries can be the most impactful – having scale and selecting market leaders can be important for long-term returns and environmental outcomes. Some pointed out that high emitters in China have only recently started decarbonizing or planning for decarbonization – a lot of money still needs to go into the space, and investment returns might be pressured until the green premium is properly priced. 

    Simply excluding the high-emissions industries means excluding large parts of the investment universe, said the Global Fixed Income team, and it means a lack of finance for their transition efforts. The important thing is to be able to assess the credibility and cost of these companies' decarbonization plans. 

    The BlackRock Energy and Power Infrastructure team saw the biggest risk of investing in high-emission companies and how people will view the assets when it's time to sell – some might be untouchable in 5-10 years. Capital markets are currently directing capital to companies that are already green, said the BlackRock Sustainable Investing team (BSI). But building a wind farm doesn’t reduce greenhouse gas emissions – shutting down a coal plant does.

    Reflections on COP26

    The private sector was front and center at COP26 – a first for UN climate conferences, continued the BSI team. Intergovernmental meetings typically dominate, but with the Paris Agreement finished (as well as a detailed “rulebook” that occupied the last few years), a shift from negotiations to execution is well underway. The journey to net zero is not just a 2050 story, it’s a now story.

    Sustainability was also a key topic at the 2022 BlackRock Investment Institute’s (BII) Year-Ahead Investment Outlook Forum. BII believes that climate-driven repricing will likely drive down the cost of capital for more carbon-efficient sectors which, all else being equal, will drive positive returns during the transition. Yet many carbon-heavy companies are changing their business models, which could potentially offer select investment opportunities.

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