BlackRock launches its first dedicated circular economy investment fund

(L-R): BlackRock fund manager Evy Hambro; Ellen MacArthur Foundation chief executive Andrew Morlet; BlackRock fund manager Sumana Manohar and The Ellen MacArthur Foundation’s executive lead for plastics

Developed as part of a newly founded partnership with the Ellen MacArthur Foundation, the fund went live last Wednesday (2 October) with $20m of initial seed funding from BlackRock itself and was announced publicly this morning (8 October) at a conference in London.

At the conference, representatives from BlackRock and the Ellen MacArthur Foundation elaborated on the fund’s specifics, explaining that it will be used to invest in firms with three different types of “exposure” to the circular economy. These firms are adopters, companies setting circular economy targets for their own operations; enablers, companies providing innovative solutions; and beneficiaries, firms which benefit from the transition to a circular economy, such as those selling recycled plastic feedstocks.

Sumana Manohar, who co-manages the fund, said its initial investments will broadly be made in the fashion, plastics and food and drink sectors, with technology and mining firms set to be added to the fund’s remit “within the next two to three years”.

“The circular economy, as a topic of business interest, is not new… and is very relatable…but it has been quite nascent as an investment theme,” Manohar said. “So, I think what we have here is very important.”

She elaborated that the launch of the fund comes at a time when policymakers and consumers are increasingly becoming concerned about the environmental, social and economic downsides of linear economy models.

On the policy side, for example, the UK is developing its Resources and Waste Strategy while many Asian nations such as China are moving to restrict waste imports for recycling. Many nations are also setting net-zero goals, with the circular economy touted as the only way to address 45% of global emissions. On the consumer piece, reuse, resale, repair and refill are growing rapidly as plastics becomes an increasingly important differentiator – one which some claim now ranks above cost.

Nonetheless, Manohar’s colleague Evy Hambro explained, there have previously been a lack of metrics to help investors determine what circular economy leadership looks like or what benefits they could reap by investing in companies “exposed” to the cradle-to-cradle transition. The Ellen MacArthur Foundation has produced several reports outlining the financial rewards to be reaped from the circular economy in specific sectors, but is still working on its white paper for investors.

To that end, BlackRock has become a Global Partner of the Ellen MacArthur Foundation, and, prior to the launch of the fund, the two organisations have worked together to help bridge research gaps.

“The more work we did on the circular economy, the more we realised it was a viable and exciting investment opportunity,” Hambro said. “To get to the point that we could take what [Dame Ellen MacArthur] was talking about into a product we could deliver to our clients has been the goal for some time.

“Of course, getting there was a complex process involving many processes; we had to determine new metrics and how we would structure work with a charity, talking not just about the fund itself but the Global Partnership. It’s been a long journey.”

Future plans

During the conference, the BlackRock representatives were asked to provide more detail on the future of the fund and how its impact may evolve over time.

Hambro said he expected the fund to grow “just as rapidly” as BlackRock’s other thematic sustainable finance products – “if not faster”. This projection was founded in market research proving that businesses with sustainable models are generally growing more rapidly than their counterparts.

Manohar additionally said that while the fund is mainly focused on a “top 10” of companies and “a few others” at present, it will hopefully cover more of the circular economy “investment universe” as it grows. At present, she said, BlackRock has identified around 800 firms which the fund could back in the future, with further expansion likely to focus on mining and technology.

However, both Manohar and Hambro said the learnings from the creation of the new fund would not be applied in the form of time-bound, numerical targets to the rest of BlackRock’s operations and products.

The Ellen MacArthur Foundation’s executive lead for plastics, fashion and finance, Rob Opsomer, additionally noted the likely impact of the fund beyond BlackRock’s own operations.

“The fact that BlackRock is the world’s largest asset manager and is engaging in this topic of the circular economy will send a strong signal to investors and to other financial institutions around the world – not just in addressing the challenges we are facing across the world, but as an investment opportunity,” Opsomer said.

“The engagement of finance in the circular economy is so important, because, at the moment, we are seeing some circular economy models emerge – there are hundreds of companies experimenting – but, given the extent of the challenges that we face, we urgently need to scale these solutions.”

Another key discussion point at the conference was the fund’s definition. BlackRock representatives confirmed that it has not been badged as a specific “ESG” or “impact” fund, due to the fact that neither of these terms has a fixed and globally agreed definition.

Green finance at edie’s Sustainability Leaders Forum

edie’s Sustainability Leaders Forum returns in 2020, as some of the biggest companies, individuals and organisations championing sustainability gather at the Business Design Centre on 4 & 5 February.

Green finance will be a key discussion point, with speakers including Green Finance Institute CEO Rhian Mari Thomas, M&G Investment’s head of responsible investment and ESG Anita McBain and Aviva Investors’ global head of governance Mirza Baig. 

Other keynote speakers at this flagship, multi-award-winning event features include Mary Robinson, former President of Ireland; Rebecca Marmot, Unilever CSO; Tom Szaky, TerraCycle CEO and Gilbert Ghostine, Firmenich CEO. For details and to register visit:https://event.edie.net/forum/

Sarah George