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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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