31 July 2019, source edie newsroom

A new report from BlackRock has found that climate change, resource scarcity and growing consumerism will create disruptive structural shifts across industries as a “confluence of global megatrends” begin to clash.

Emerging economies will pose challenges around consumerism, but can also benefit from cheaper clean technologies 

Emerging economies will pose challenges around consumerism, but can also benefit from cheaper clean technologies

BlackRock’s Megatrends: The forces shaping our future report has found that key megatrends around technological advancements, demographic shifts, new areas of global wealth and rapid urbanisation are all set to reach new milestones within the next five years and have urged investors and corporates to consider the climate-related impact of future investment decisions.

“Most major economies are undergoing powerful shifts in their demographic profiles, while resource scarcity and climate change are coming under greater scrutiny,” the report states.

“Rapid urbanisation is pulling in significant investments and changing consumer behaviour, especially in high-growth emerging economies. At the same time, the increasing ubiquity of technology is redefining business models in a host of industries and unleashing widespread disruption. These forces, which we call megatrends, are giving rise to a new set of powerful investment themes.”

Noting that 18 of the 19 warmest years on record all have occurred since 2001, BlackRock lists climate change and resource scarcity as a key megatrend to be addressed by investors and corporates. However, climate change and low-carbon innovation are themes that run through the rest of BlackRock’s highlighted megatrends.

Technological breakthrough

The report notes that new technologies will either work to resolve or accelerate megatrends, but that breakthrough innovation is required to address some large-scale challenges, such as climate change.

BlackRock notes the growth in electric vehicles (EVs), e-commerce, solar panels, robotics, blockchain, cloud computing, streaming and smart grids as examples of where incumbent businesses may tweak business models to capture new economic opportunities while addressing societal or environmental needs.

There are also investment considerations, with BlackRock urging the financial services sector to “assess the lifecycle of new technologies” to avoid bottlenecks the stunt technological growth. An example of this would be to also invest in lithium mining to help spur the production of EV batteries.

Demographics and social change

While this part of the report mostly focuses on the fact that most advanced economies are “ageing rapidly”, it does note that automation and digitalisation will assist with this age shift, but also trigger challenges for younger economies. This digitalisation could also come with an increased carbon footprint for business.

Increased cases of immigration, largely exacerbated by climate change, will also lead to further strain on societies.

The investment considerations of this megatrend largely focus on the “distinctly different spending priorities” of younger generations, with millennials more willing to align with brands that promote health and wellbeing or low-carbon products and services.

Emerging global wealth

The World Bank notes that China alone is set to add one billion people to the global middle class between 2005-2030; the country is also forging ahead with a $1trn Belt and Road Initiative to improve trade routes across south Asia, improving wealth across developing countries.

While emerging global wealth does create issues around the growth of consumerism and consumption in primarily linear economies, the report notes that emerging markets can adopt cheaper and better technologies such as clean energy and battery storage from developed economies.

Primarily, the investment considerations focus on closed-loop models to ensure the growth in consumption doesn’t lead to a growth in waste. Investors should also be able to satisfy the rising demand for food, clean energy, cheaper healthcare, faster telecom networks and work with global companies to facilitate the creation of viable and sustainable solutions.

Climate change and resource scarcity

“An expanding population and the rising demand for food, energy and materials continue to strain the finite resources of the planet,” the report states. “The need for solutions that improve energy efficiency, lower food waste and provide alternatives to scarce resources has never been greater. Underlying these trends is the persistent increase in global emissions which has led to intensifying debates around climate change and how we can resolve it.”

The report also adds that land area dedicated to agriculture has not increased in the last 20 years and that to produce more with less, “productivity improvements need to be relentless”.

The investment opportunities for resource scarcity are focused on chemical and fertiliser companies as well as technologies such as drones, predictive weather analytics and precision agriculture that are necessary to increase yield across the world.

Rapid urbanisation

The final megatrend highlighted in the report is rapid urbanisation. According to McKinsey, the top 50 cities account for 8% of global population, 21% of world GDP, 37% of urban high-income households and are home to 45% of firms with more than $1bn in annual revenues.

Urbanisation is intrinsically linked with economic growth, meaning many issues around consumerism will also have to be addressed under this trend. However, the consumption of clean energy and access to low-carbon transport and infrastructure are also prevalent.

The investment opportunities, in this case, are to address the built environment, particularly as large-scale transport infrastructure, airports and bridges become essential to living. Again, EVs will require significant investment in terms of charging and grid integration.