Sustainability case study
Green Capex Opportunities - enabler
Until recently, the standard approach to sustainable investing resulted in investors excluding high carbon companies and sectors and/or overweighting ‘green’ companies and sectors that have limited exposure to ESG risk. However, this does not tackle real world emissions, which we try to address with our investment philosophy and process.
There is significant opportunity here to invest in those high carbon companies that have potential to be able to decarbonise. There is an even bigger investment opportunity that stems from providing the kit that helps such companies decarbonise; this is the Green Capex Opportunity. This is precisely where a capex boom, which is borderline mandated by governments in Europe, is most likely to take place. We find no better example of this opportunity than Danieli.
As noted by a recent BlackRock publication, a standard ESG approach may exclude a steel business on the basis that it is typically a high carbon sector. However, Danieli has a clear strategy to achieve zero carbon steel and has developed technologies to support this pathway by relying on a solid balance sheet with high R&D to innovate such technologies. Its electric arc equipment has a lower carbon intensity than 70% of the world’s basic oxygen steel production process.
MSCI rate Danieli BB due to concerns around employee engagement and corporate governance, but predominantly as a result of Danieli’s supposed modest opportunities in clean technology and apparent limited strategies to leverage the growing demand for cleantech products. This is a classic example of where MSCI ESG ratings underrate companies based on backward-looking sustainability credentials whereas our S-PVT process captures those enabling companies that have the potential to tackle real world emissions.
 More information about our sustainability philosophy and process can be found on our website here
 Philipp Hildebrand, Mark Wiedman (2022). Managing the net-zero transition. BlackRock.