Sustainability

Why the Climate Transition Will Reshape the Global Economy: In Graphs

October 2022 – 2 min read

Climate change is one of the greatest risks of our time—and tackling it will likely drive a number of shifts across the world that investors need to understand.

Insights from the Barings Investment Institute

As we transition to a lower-carbon world, the global economy will be reshaped to meet the world’s climate goals and prepare to address climate change.

Notwithstanding the pandemic, energy use is growing. Since COP95, energy consumption has steadily increased, with 82% of today’s total energy consumption coming from fossil fuel sources. Only 13% comes from renewable energy, including wind, solar, biofuels, and hydroelectricity.1

The Majority of World Energy Consumption Still Comes From Fossil Fuels

why-climate-transition-chart1.jpgSource: World Energy Consumption, Fossil Fuels, BP 2022 Statistical Review of World Energy.

But the deployment of renewable energy requires land. The amount of agricultural land per capita has been steadily declining since the 1960s, meaning renewable energy sources will compete with humans, cattle and crops for this shrinking resource.

Land to Deploy Renewable Energy is Growing Scarce

why-climate-transition-chart2.jpgSource: Global Agricultural Land, Hectares Per Capita, World Bank. As of 2016.

In addition, renewable energy doesn’t provide the same intensity of energy as fossil fuels, meaning more land and resources are required. If we were to power Europe only with solar energy, for example, it would take a surface half of Europe’s urban land.2

Renewable energy sources also require far more minerals than the energies they’ll replace, which will lead to huge competition for resources.

Renewable Energy Sources Require More Minerals Than Conventional Ones

why-climate-transition-chart3.jpgSource: Mineral Intensity, Renewable Energy Sources, The Role of Critical Minerals in Clean Energy Transitions, IEA. As of May 2021.

To illustrate this, electric cars require five times the minerals used in conventional cars. 61 different metals are needed for electric vehicles, 13 for wind and 20 for solar panels.

Because it takes a long time to open new mines—an average of seven years—demand for metals and minerals will be so high, it will overtake supply.

Miners Will Struggle to Feed Demands with the Current Project Pipeline

why-climate-transition-chart4.jpgSource: Demand for Metals and Minerals, Bank of America, Metals Strategist.

Many countries are trying to reduce the permit process for opening mines but are confronted with a number of environmental and social checks to which they need to find a solution.

By 2024, demand will overtake supply for copper, and by 2027, the same will be true for lithium, nickel and platinum. By 2030, there will be 100% more demand than supply for lithium.3

We’ll rely heavily on (mostly) emerging markets for the minerals and metals needed for renewable energy. 75 percent of lithium and cobalt are controlled by three producers: Australia, Democratic Republic of Congo and China.

China, Australia and the DRC Will Produce the Majority of Minerals Required for Renewable Energy

why-climate-transition-chart5.jpg

China Will Process the Majority of Metals and Minerals

why-climate-transition-chart6.jpgSource: Share of the Top Three Producing Countries in Total Production, Share of Processing Volumes Per Country, The Role of Critical Minerals in Clean Energy Transitions, IEA. As of May 2021.

China also dominates the costly and energy-intensive refining and processing of these minerals, particularly nickel and zinc.

Governments will need to have plans in place about how they will turn their carbon pledges into action, as securing supply of these minerals will require new strategic alliances.

Because resource-rich emerging economies are most at risk from climate change, it could be mutually beneficial for them to agree to enter alliances with countries that need to electrify and decarbonize the most.

Asian and African countries’ GDP is Most at Risk From Climate Change

why-climate-transition-chart7.jpgSource: GDP at Risk, S&P, Physical Climate Risks: Global and Country Analysis. As of May 2022.

In terms of GDP at risk, Europe, Latin America and North America are the least exposed, while resource-rich Asian and African countries are the most.

In fact, South Asia will be over ten times more exposed than Europe in 2050.4

Want to read the full article?

View PDF


1. Source: BP 2022 Statistical Review of World Energy.

2. Source: Scientific Reports. As of February 3, 2021.
3. Source: Bank of America, Metals Strategist.
4. Source: S&P, as of May 2022.

22-2409031

Any forecasts in this material are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Investment involves risk. The value of any investments and any income generated may go down as well as up and is not guaranteed by Barings or any other person. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

Any investment results, portfolio compositions and or examples set forth in this material are provided for illustrative purposes only and are not indicative of any future investment results, future portfolio composition or investments. The composition, size of, and risks associated with an investment may differ substantially from any examples set forth in this material No representation is made that an investment will be profitable or will not incur losses. Where appropriate, changes in the currency exchange rates may affect the value of investments. Prospective investors should read the offering documents, if applicable, for the details and specific risk factors of any Fund/Strategy discussed in this material.

Barings is the brand name for the worldwide asset management and associated businesses of Barings LLC and its global affiliates. Barings Securities LLC, Barings (U.K.) Limited, Barings Global Advisers Limited, Barings Australia Pty Ltd, Barings Japan Limited, Baring Asset Management Limited, Baring International Investment Limited, Baring Fund Managers Limited, Baring International Fund Managers (Ireland) Limited, Baring Asset Management (Asia) Limited, Baring SICE (Taiwan) Limited, Baring Asset Management Switzerland Sarl, and Baring Asset Management Korea Limited each are affiliated financial service companies owned by Barings LLC (each, individually, an “Affiliate”).

NO OFFER: The material is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service in any jurisdiction. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This material is not, and must not be treated as, investment advice, an investment recommendation, investment research, or a recommendation about the suitability or appropriateness of any security, commodity, investment, or particular investment strategy, and must not be construed as a projection or prediction.

Unless otherwise mentioned, the views contained in this material are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Individual portfolio management teams may hold different views than the views expressed herein and may make different investment decisions for different clients. Parts of this material may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this material is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any service, security, investment or product outlined in this material may not be suitable for a prospective investor or available in their jurisdiction. Copyright in this material is owned by Barings. Information in this material may be used for your own personal use, but may not be altered, reproduced or distributed without Barings’ consent.

Investing Together

In our experience, the time invested in relationships, is time well spent.

We partner with our clients to understand their objectives—harnessing the power of our global platform to create long-term, sustainable, investment solutions.

Related Viewpoints