Climate change and resource scarcity

Climate change and
resource scarcity

  • What is the impact of this megatrend?
  • What are the potential implications for the future?
Capital at risk. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.
Curbing carbon emissions requires significant spending on green infrastructure and a reduction in fossil fuel subsidies. This can create large investment opportunities in areas that attract capital or industries at risk
of disruption.
ISABELLE MATEOS Y LAGO , BLACKROCK INVESTMENT INSTITUTE
0
of the
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Warmest years on record have
occured since 20011
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The Impact

4 examples of climate change
and resource scarcity

The impact of climate change has been discussed for some time now. Barely a day goes by without major coverage of it in the press, and it can be difficult to separate the real issues and challenges from headline-making conjecture. Here we provide our view based on recent research, which gives greater detail on the effects of climate change and insight into the potential outcome:
1. Increased strain on the planet’s resources
The global population is expanding rapidly and becoming increasingly prosperous. This is leading to significant demand for energy, water and food, which is putting a strain on the traditional, finite resources of the planet. According to The United Nations Food and Agriculture Organization (FAO), the global population will surpass 9.1 billion by 2050, at which point they predict the world’s agricultural systems will not be able to supply enough food for everyone. And the UN projects that the global demand for fresh water will exceed supply by 40% in 2030, with some cities, like Cape Town, already suffering from ‘water stress’.2
2. The world is heating up
The average surface temperature of the planet has been on an upward path since the late 19th century and this trend looks set to continue.3
CO2 levels during the last three glacial cycles, as reconstructed from ice cores
CO2 levels during the last three glacial cycles, as reconstructed from ice cores chart
Important Information: For Illustrative purposes only. This graph, based on the comparison of atmospheric samples contained in ice cores and more recent direct measurements, provides evidence that atmospheric CO2 has increased since the Industrial Revolution. Source: Vostok ice core data/J.R. Petit et al.; NOAA Mauna Loa CO2 record.
3. Increased emissions
The human practice of burning fossil fuels is thought to be the primary cause of global warming. Carbon dioxide and other gases are released and trapped within the atmosphere, which in turn means heat can’t escape. As the graph shows,4 atmospheric carbon dioxide levels have rocketed since the time of the industrial revolution and show no sign of abating.
4. Average temperatures
Average temperatures are forecast to rise by more than two degrees before 2100,5 creating significant and irreversible damage and increasing strain on global resources. A study by Pricewaterhouse Coopers (PwC)6 estimates that this two-degree threshold could be reached as early as 2036.
Data from Nasa shows that global warming is currently outpacing efforts to curb it. This warming is distinct from other periods of climatic change (of which there have been many, such as the ice age) because there’s a 95% probability that its predominant cause has been human activity since the mid-20th century.7
Climate Change
16 of the 17 hottest
years have occurred
since 2000
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The Outlook

3 implications of this megatrend:

The impact of global warming should not be underestimated. Rising temperatures could eventually have a significant impact on crop yields, causing food prices to surge, which in turn could impact poorer communities. At the same time, coastal areas will be increasingly susceptible to regular flooding as sea levels rise.8
This is a global problem, and is further exacerbated by other megatrends, such as urbanisation and the significant growth in consumption in emerging markets. The UN believes that the changes required to adequately address the issue ‘have no documented historical precedent’9. Some of the changes identified will indeed require a step-change in consumer behaviour and the development of new technologies to replace existing resources and infrastructure.
1. More produce, less inputs
In order to meet the increased food demands of the future, the agricultural industry will need to continue to innovate to become more productive with less resources and inputs. Technology is playing a key role via the rising adoption of precision agriculture. Precision variable rate technologies such as one that can detect weeds with sensors and spot sprays could slash herbicide usage by up to 95%.10 McKinsey published that with a 20-40% adoption rate for precision, agriculture yields could be boosted by 10-15% globally by 2025.10
2. Utilisation of clean energy
Sustainable energy sources are increasing in importance as the rhetoric condemning fossil fuels continues and changes in commodity consumption occur. But change is also about using energy more efficiently in everything we do.
3. Goodbye to cars as we know them
As tariffs are placed on internal combustion engine vehicles, experts predict that by 2040 we will all be driving electric vehicles.11 And while the idea of driverless cars still feels like science fiction, the UK Government has set a target of having the first autonomous cars on the road by 2021,12 with companies such as Daimler planning ‘full production of autonomous vehicles by the early 2020s’.13
As China becomes a new superpower (see Shifting Economic Power), it has increased global responsibility.

Beijing became the first city in China to be coal-free for heating and electricity.14 It has also spent $1.3 billion** to convert its 70,000 car taxi fleet to electric power.15
Beijing
**Figures shown in US Dollars

How do megatrends work?
View our infographic.

'Technological breakthrough' is a catalyst for other trends while also being key to many of the global issues we face.
The interconnectivity that characterises the world today means that none of these megatrends exists in isolation; when trends collide and overlap, new investment themes appear.
To learn more about megatrends, view our infographic below.

Download BlackRock's Megatrend Research Study

An examination of structural shifts in the global economy
  • How are megatrends relevant to investors?
  • 5 megatrends shaping our investment thinking

Investing in themes

We believe there are a number of investment themes that emerge at the intersection of the five megatrends that we have outlined.

Some investors may want to consider employing the skills of an active fund manager to select stocks that provide exposure to a particular theme – as long as they are prepared to pay the associated costs that may come with such investments. Others may want to consider a rules-based approach to thematic investing, whereby a set of rules – rather than a fund manager making an active decision – determine whether a company is connected to a theme or not. Today, investors can benefit from this new, low cost, approach to thematic investing.

Capital at risk. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

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This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any financial instrument or product or to adopt any investment strategy.