The world's current use of commodities is unsustainable. Markets must adopt greater urgency in tackling the challenges posed by climate change, major technological advances and shifts in consumer preferences, according to a UBS Global Wealth Management report published today, called "The commodity crunch point".
While some commodity producers are adapting to these challenges, others are lagging. The United Arab Emirates (page 39 of the report) has bolstered its economy through diversification and solid public finances. Similarly, Saudi Arabia (page 38) has initiated reforms, while still benefiting from low oil extraction costs. Brazil's (page 42) economy is diversified, but needs a further structural overhaul. South Africa (page 41) and Nigeria (page 40), on the other hand, need to address sustainability challenges more urgently.
Globally, food production accounts for 40 percent of land use, 30 percent of greenhouse gas emissions, and 70 percent of freshwater consumption according to the UN. About 2 billion extra people will live on the planet by 2050 – up from just under 8 billion today – and global demand for food is expected to increase by roughly 60 percent.
As for energy, the displaced demand for fossil fuels could exceed current US oil demand of nearly 21 million barrels per day by 2040, equivalent to over USD 1 billion per day at the time of writing.
"Commodity markets are in transition, which presents both risks and opportunities for investors. A growing population, particularly in emerging markets, will require radically different approaches to food production, for instance, and we believe that alone to be a USD 700bn opportunity," said Ali Janoudi, Head Central and Eastern Europe, the Middle East and Africa at UBS Global Wealth Management.
"Commodity markets are intertwined with the global economy and face numerous challenges. However, we're encouraging our clients to look beyond risk mitigation and seize the opportunity such challenges entail," said Caroline Kuhnert, Head of Ultra High Net Worth for Europe, the Middle East and Africa at UBS Global Wealth Management.
"Many of the changes our research foresees in the commodities sector originate from environmental, social and governance trends," said Michael Bolliger, Chief Investment Officer for Central and Eastern Europe, Middle East and Africa at UBS Global Wealth Management, adding: "We believe investors should make use of sustainable investing, including green bonds, to reap returns as well as support this transition."
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