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Food, water, air, energy and basic minerals: these resources are essential for both our fundamental needs and our economic development. But they are also in increasingly short supply – posing serious threats to global economies and ecosystems.[1]
The need for better management of natural resources has never been so compelling. This creates new investment opportunities in companies that offer solutions to scarcity or alternatives to traditional resources.
An increasing global population and rising demand for essential resources are putting strains on the world’s limited natural capital. But this also presents growth opportunities for companies helping to address these needs and offering innovative solutions.
Here, we identify five themes where greater allocation of capital may benefit investors and society alike.
Metals and minerals
As we move towards a low-carbon economy, demand is growing for minerals such as copper, lithium, nickel and rare-earth elements. These are vital components in clean-energy technologies such as wind turbines, solar panels and electric vehicles.
But, these minerals are scarce and hard to access. To achieve net zero, an estimated investment of US$360-$450 billion [2] is required to meet the demand for the necessary minerals, according to the International Energy Agency. That entails significant growth potential for the miners and producers of essential metals.
Water
As Europe’s winter weather sets in, it can be easy to take water for granted. But it is a vital resource that’s under severe pressure in many parts of the world. Climate change has led to a “higher incidence of flooding and drought, exacerbating the pressures on water supplies from urbanisation, growing populations and rising incomes[3]. And with supplies under stress, countries face challenges in expanding and renewing their water-related infrastructure.
To meet these challenges, investment is required across a broad range of water-related projects and companies. These include manufacturers of water equipment, providers of treatment and supply services, and infrastructure projects from wells to pipelines to sewers. Investment will have to increase significantly to secure safe drinking water for millions and treat wastewater and drain stormwater across both developed and emerging markets.
Clean energy
As the world faces environmental challenges and concerns about energy security, renewable energy systems have a pivotal role to play.
In the past, renewable energy was seen as prohibitively expensive. Today, however, the falling cost of renewable energy allows it to compete favourably with traditional power sources. For example, the production costs of solar-photovoltaic energy were 29% cheaper [4] than the least expensive fossil-fuel option in 2022. That compares with 2010, when solar-photovoltaic was 7x more expensive.[5] These lower costs are leading to the widespread adoption of clean energy. At the same time, there is mounting social and regulatory pressure on businesses to reduce their carbon emissions, increasing demand for renewables still further.
For investors, opportunities in clean energy include companies that supply renewable power, as well as the manufacturers of the underlying technologies in the solar, wind and hydrogen sectors.
Wood
As we become more aware of the pollution caused by plastics, wood, cardboard and paper are increasingly preferred alternatives. Wood products are much more readily recycled than plastic, and wood can also be used in construction instead of carbon-intensive steel and cement.
But the importance of forestry goes beyond its products. Forests absorb and store atmospheric carbon dioxide, helping to offset emissions. Today, about 30% of the carbon emissions from burning fossil fuels are naturally absorbed by forests.[6] With the development of carbon trading schemes, forest owners (and investors) can receive remuneration for absorbing and storing carbon. Meanwhile, forestry management companies benefit from the growing demand for sustainable timber.
Agriculture
Over the next 30 years, the world’s population is set to increase significantly– meaning that two billion more people will need to be fed.[7]
But the availability of essential agricultural resources – land, freshwater and labour – is not increasing. Accelerated investment is required across the agricultural value chain, particularly in new technology such as precision agriculture, which aims to improve the profitability, efficiency and sustainability of farming.
Thematic investing: addressing global challenges
These five themes stand to benefit from a potential structural growth trend while also addressing some of the world’s greatest challenges by improving access, availability and quality of essential resources.
To learn more about iShares’ Thematics range, visit our website or contact your local iShares’ representative.
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- Geopolitics of the Energy Transition: Critical Materials, IRENA, July 2023.
- IEA, Energy Technology Perspectives 2023, Jan 2023.
- Global Commission on the Economics of Water, March 2023.
- BlackRock, IRENA Renewable Power Generation Costs in 2022 published in August, 2023. Based on the levelised cost of electricity (LCOE).
- BlackRock, IRENA Renewable Power Generation Costs in 2022 published in August, 2023. Based on the levelised cost of electricity (LCOE).
- Boston University: City Trees and Soil Are Sucking More Carbon Out of the Atmosphere Than Previously Thought, February 2022.
- United Nations, World Populations Prospects, July 2022.
