The ongoing trend of deglobalisation, accelerated by US/China tensions, is seeing countries address the net-zero transition at a national level, said Tara Clee, ESG analyst at Hargreaves Lansdown.
Another megatrend, decarbonisation, is set to shake up the whole economy, Clee noted.
This is because, while this transition brings a wealth of opportunities to the economy, it is projected to be highly expensive and inflationary in nature.
Additionally, most major economies are facing an ageing demographic.
With wealth shifting into the hands of environmetal, social and governance-conscious millennials, companies and governments are being forced to prioritise the net-zero transition.
In energy, Prime Minister Rishi Sunak’s recent approval of 100 new North Sea oil and gas drilling licenses leans on this trend of deglobalisation as he promotes energy independence.
“However, we know that we need to be scaling up renewable energy production and winding down our use of fossil fuels in order to hit net zero,” Clee added.
“Deglobalisation could be economically lucrative for communities. A prime example of this is the community-backed onshore wind turbine erected by Bristol residents to tackle fuel poverty and projected to bring in at least £100,000 a year.
“Should we move to community-based energy sources, this could pose a risk for sustainable energy funds that typically rely on the distribution of energy at the national level.”
In transport, the transition of the sector is reliant on the shift from internal combustion engines to electric vehicles and the rolling out of the supporting infrastructure.
Clee said: “This is reliant on an intricate global supply chain of semiconductors, metals, and materials. Deglobalisation may pose a risk to this sector should it become harder to trade with key continents such as Asia and South America.”
She added the powers of deglobalisation would be “head-to-head” with the devastation of climate change when it comes to changes in the agricultural sector.
“While some countries may be trying to produce more at home, heatwaves and droughts will dictate where we can continue to harvest our food.
“Companies focusing on technological developments, such as vertical farming, will not only be ensuring a sustainable future for their communities but would be at the forefront of the revolution. As such, deglobalisation could pose lesser of a threat to thematic funds in this area.”
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