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BlackRock
Updated 03 Nov 2023
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Disclaimer

This is a non-independent marketing communication commissioned by BlackRock. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

The Inflation Reduction Act celebrates its one-year anniversary in early August. The Biden administration’s flagship climate legislation directed $369 billion in clean energy tax credits and funding for climate and energy programs,1 money that is already working through the system to deliver the government’s decarbonisation ambitions.

We expect the Act to drive further innovation in new transition technologies, such as carbon capture, utilisation and storage (CCUS), next-generation nuclear and clean hydrogen. We also anticipate the Act may help reduce the US’s reliance on China for minerals and metals needed for renewable energy.

The legislation’s effects are now coming into clearer focus and many of these predictions are becoming a reality. The recent IEA report on the state of the energy market in 2023 found that the Inflation Reduction Act has prompted a wave of investor interest in hydrogen and CCUS.2 There are now a growing number of large-scale, well-capitalised projects, which should move the technology on over the next few years.

A recent report from Rhodium Group3 found that new wind and solar facilities have been increasingly competitive with new natural gas generation facilities. It also showed that on current measures, the legislation will also influence the speed with which electric vehicles replace gas-powered cars, suggesting that by 2035, electric vehicles will comprise between one-third and two-thirds of all passenger car sales.

There is no guarantee that any forecasts made will come to pass.

Managing climate risk

Given the Trust’s ambition to deliver a lower carbon emissions intensity relative to its reference index, these changes are important. Our aim is that the companies in which we invest are ahead of their peers on energy usage and emissions, and on the front foot in adopting emerging energy solutions to remain competitive. With ‘green’ energy costs falling, companies that rely on legacy energy solutions may become more vulnerable.

This has been an important part of our recent engagement programme. We have been engaging with a large car manufacturer for example, to help it communicate better on its strategic pivot to electric vehicles and how it is being factored into future compensation decisions. We have also sought to engage with an energy company to understand their views on climate risk management and how it relates to specific projects.

These changes still require significant investment on the part of the industrial sector, and broader adoption will depend on whether the industrial sector can see easy pathways to transition. With that in mind, we hold a number of companies that are helping businesses make these changes, modernise their technology and reimagine their processes.

Climate risks are investment risks

Companies cannot afford to ignore risks and climate risks in particular. In the long-term, they are likely to prove serious investment risks, as investors react to the impact of climate policy changes. In our view capital is likely to reallocate to those companies that are managing these risks successfully. Companies must be prepared to adapt, innovate and pivot their strategies towards a low carbon economy.

Having said this, we hold a select few fossil fuel providers in the portfolio. We do not believe this is incompatible with the objective. In fact, it is often with these fossil fuel providers that the greatest gains on carbon emissions reduction can be made. Engaging with them to improve performance can help shift the dial on carbon emissions more than simply investing in companies that have already made the change.

The Inflation Reduction Act has helped galvanise the green energy sector and deliver on the US government’s decarbonisation ambitions. As investors, it is vital that we are on the right side of this change. This helps guide our sustainability strategy over the long-term.

1 One year in, the inflation reduction act is working, July 2023, Grist - https://grist.org/politics/one-year-in-the-inflation-reduction-act-is-working-kind-of/
2 World energy investment report 2023, International Energy Agency, May 2023
3 Taking Stock 2023 report, Rhodium Group, July 2023, https://rhg.com/wp-content/uploads/2023/07/Taking-Stock-2023_Rhodium-Group.pdf

Risk Warnings

There is no guarantee that any forecasts made will come to pass.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Trust-specific risks

Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.

Currency Risk: The Fund invests in other currencies. Changes in exchange rates will therefore affect the value of the investment.

Emerging Markets: Emerging markets are generally more sensitive to economic and political conditions than developed markets. Other factors include greater 'Liquidity Risk', restrictions on investment or transfer of assets and failed/delayed delivery of securities or payments to the Fund.

Gearing Risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

Important Information

In the UK this is issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.

This document is marketing material. The Company is managed by BlackRock Fund Managers Limited (BFM) as the AIFM. BFM has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Limited. The Company’s shares are traded on the London Stock Exchange and dealing may only be through a member of the Exchange. The Company will not invest more than 15% of its gross assets in other listed investment trusts. SEDOL™ is a trademark of the London Stock Exchange plc and is used under licence.

Net Asset Value (NAV) performance is not the same as share price performance, and shareholders may realise returns that are lower or higher than NAV performance.

The investment trusts in this document currently conduct their affairs so that their securities can be recommended by IFAs to ordinary retail investors in accordance with the Financial Conduct Authority’s rules in relation to nonmainstream investment products and intend to continue to do so for the foreseeable future. The securities are excluded from the Financial Conduct Authority’s restrictions which apply to non-mainstream investment products because they are securities issued by investment trusts. Investors should understand all characteristics of the funds objective before investing. For information on investor rights and how to raise complaints please go to www.blackrock.com/corporate/compliance/investor-right available in local language in registered jurisdictions.

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

© 2023 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS and iSHARES are trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.

MKTGH1023E/S-3101677

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