Securing the bare necessities of life
THEME 2

Securing the bare necessities of life
The COVID-19 pandemic and conflict in Ukraine have reinforced and accelerated the megatrends in security.
At the top of the agenda are the transition towards renewable energies, and the identification of fossil-fuel energies as alternatives to Russian exports. Meanwhile, widespread concerns over shortages and rationing are forcing governments (especially in Europe) to implement massive investments to support the energy transition over a multi-year horizon. Two other challenges relate to the efficient use of and access to clean water, and securing the key raw materials needed for energy storage and efficiency. The Russia/Ukraine conflict has also highlighted the issues surrounding food security, while the increasing use of digital technologies stresses the importance of technology security, including the supply of semi-conductors and reliable cybersecurity tools.
OUR RECOMMENDATIONS
Investable sub-themes of this new strategic assets mega theme include:
1. Energy security: energy efficiency, renewable/biomass energy generation, battery metals & energy storage, hydrogen power, oil & gas infrastructure, oil & gas exploration & production, uranium/nuclear power.
2. Water and commodities: companies that provide technologies for water efficiency, recycling and desalinisation.
3. Food security and alternative food sources: solutions to combat malnutrition, via more effective water irrigation, fertilisers and technologies to boost crop yields, as well as companies which combat food waste. Alternatives to meat and vegan food.
4. Technology security: semiconductors, cybersecurity, satellite technology and networks.
KEY RISKS
- A major global recession should drive severe demand destruction for energy and raw materials, driving down commodity prices and thus hurting the profits of commodity-producing companies. It is, however, unlikely to jeopardise long-term trends.
- Investment solutions for this theme mainly relate to equities. Despite the theme’s relevance and attractive expected returns, such solutions are subject to movements in global equity markets.
Energy, national security and sustainable growth
Europe is a prime example of a continent where priorities are shifting away from the import of relatively cheap natural gas from Russia towards the pressing need to identify alternative sources of natural gas and other energy. The race to guarantee energy security within the European Union is on. Indeed, this has become an issue of national security in several countries. Moreover, growing concerns over climate change are prompting governments to invest massively in renewable energies to accelerate the reduction of carbon dioxide emissions.
Security of water and raw materials
Increasing demand for water combined with its uneven and unreliable supply are making it one of the world’s most precious resources. Huge investments are necessary to build and maintain efficient and sustainable infrastructure, for recycling and desalinisation activities for example. In other sectors, such as agriculture, water use must become more efficient.
Food security and alternative food
Turning now to food security, the developed world enjoyed a productivity boom in agriculture and farming that allowed food prices to decline steadily from 1980 to 2003, and then from 2011 to 2020. An environment in which the real (after-inflation) cost of food was falling around the globe turned into one of galloping food prices in late 2020, stirring up civil unrest in some developing economies in the process.
The Russia/Ukraine conflict has also highlighted the issues surrounding food security. Indeed these two countries are major food producers, and sanctions against Russia have contributed to the astounding upswing in fertilizer prices. Large investments are required to expand the supply/production of food to improve food security. We focus on two parts of the food value chain and watch companies actively involved in sustainable and environmentally-friendly food production: i) innovations in agricultural science including environmentally-friendly pesticides and fertilizers and precision farming (increasing the crop yield for any given number of inputs needed); ii) producers of new kinds of food, such as meat alternatives and vegan food.
Technology security in chip production, cybersecurity
As in other security subthemes, we are likely to see ramped-up investment in some areas of technology, such as semiconductor production and cybersecurity. Until now, the backbone for all technology, namely semiconductor chips for processing, memory, storage and sensors, has been largely manufactured in the Far East (e.g. South Korea, Taiwan). The new emphasis on national security is set to usher in the construction of new semiconductor plants in the US and Europe, in order to secure supply in this extremely strategic industry. Cyberattacks have been on the rise in recent years while the use of digital technologies has been booming since the outbreak of the COVID-19 pandemic and the ensuing lockdowns. Indeed teleworking and the fast expansion of virtual and digital tools is driving demand for cybersecurity services.