Green premiums in commodity pricing an eventuality, Evy Hambro says

The evolution of ‘green premiums’ in the mining sector will allow companies to grow value without growing volume, according to BlackRock’s global head of thematic and sector investing Evy Hambro.

The influential mining investor, who manages more than $20 billion across his World Mining, World Gold and Circular Economy Funds, told The Australian Financial Review that companies investing to reduce their carbon footprint will soon attract green premium prices.

“There is a decision that companies are going to have to take between investing for growth in volumes and investing for decarbonisation, and our view is that over time we will see commodities increasingly being priced on how they are produced rather than necessarily the commodity itself,” he said.

“If you can produce a commodity with lower emissions and it meets all the related ESG requirements you might end up with premium pricing for that commodity, or those commodities become the market price and ones that have high carbon emissions trade at discounts.”

“We will see these characteristics being built into commodity pricing, and therefore to minimise your operating footprint, a focus on Scope 1 and Scope 2 emissions is going to be of value to your customer who buys those commodities.

“Therefore most companies are likely to lean towards investing in that direction over the near to medium term rather than necessarily investing for growth in volumes, unless the decarbonisation is twinned with volume-related capital investment,” Hambro added.

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