THIS DOCUMENT IS MARKETING MATERIAL 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.
Thematic investing is about looking towards the long-term and orienting portfolios towards the big structural changes that will define our era. With that in mind, our BlackRock Investment Institute has named the transition to a low-carbon economy as one of five mega forces that we see as structural shifts bringing significant changes in profitability across economies and sectors. The transition to a low-carbon economy is driving an economic transformation spurred by government policy, technological innovation, and consumer preferences.¹
In 2022 alone, $1.1trn of global capital was committed to low-carbon energy supply investment solutions, crucial to bringing us closer to the transition to a low-carbon economy.²
Investors looking to align their portfolio to the transition to a low-carbon economy can choose from a range of iShares thematic ETFs, that are designed to benefit from or contribute to the transition. Let us take a closer look at the themes shaping this range.
Clean energy – towards a renewables-powered economy
A key focus of the transition to a low-carbon economy is on the highest-emission segment: power generation.³
Industrial advances are driving energy independence and reduced-emissions targets, which combine to boost investment in clean-energy infrastructure and technology.
In 2022, 86% of all newly contracted renewable capacity had lower costs than fossil-fuel-fired electricity, indicating how production costs associated with renewable energy now rival those of traditional power sources.⁴
Essential metals – needed for a low-carbon transition
Minerals such as copper, lithium, nickel and rare earth have unique characteristics that are useful for constructing the technology required to transition to a low-carbon economy, including renewable energy systems, wind turbines, solar panels and electric vehicles. The acceleration of the low-carbon transition, coupled with supply-chain challenges, could present growth opportunities for miners and producers of these essential metals.
LITHIUM – CHARGING AHEAD
Lithium is an important metal for electric vehicles and energy storage. Companies involved in the production of lithium and lithium-battery producers could benefit from increasing demand for these technologies, with annual lithium demand expected to increase 22x between 2022 and 2050 in the Net Zero Scenario by BloombergNEF.5
COPPER – WIRING THE PRESENT TO THE FUTURE
Copper plays a role in all things linked to electrification, so copper miners are one of the main groups likely to benefit from the low-carbon transition. For instance, in power production, copper is used intensively in manufacturing wind turbines and solar cells. And in transportation, electric vehicles use 2.5x more copper than non-electric cars.²
By 2035, it is estimated hat copper demand will nearly double from 2021 levels, with most of this growth coming from transition-related demands.⁶
Index funds, including ETFs, can provide exposure to strategies with a focus on preparing for, being aligned to, benefiting from and/or contributing to the transition to a low-carbon economy.
To learn more about transition thematic ETFs, visit www.ishares.com/uk/individual/en
This article first appeared in ETF Insider, ETF Stream's monthly ETF magazine for professional investors in Europe. To read the full edition, click here.
1 BlackRock Investment Institute (BII), 2023 Global Outlook: New Regime, New opportunities, as at 31/07/2023 2 Bloomberg NEF Global Low-Carbon Energy Technology Investment Surges Past $1 Trillion for the First Time, as at 26 January 2023 3 IEA CO2 emissions in 2022, as at 30/03/2023 4 IRENA, Renewable Power Generation Costs in 2022, as at 30/08/2023 5 Bloomberg NEF Electric Vehicle Outlook 2023 6 S&P Global, ‘The Future of Copper - Will the looming supply gap short-circuit the energy transition?’, as at 31/07/2022
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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. Current or future results should not be the sole factor of consideration when selecting a product or strategy. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.
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