According to PwC’s 2024 Annual Global CEO Survey, 47% of CEOs have already adopted proactive measures to safeguard their workforces and physical assets from climate change. We’re likely to see these initiatives grow in scale throughout the rest of the decade. 

While we’re in the midst of unprecedented climate challenges, commodity trading surpassed $100 billion EBIT in 2023, equating to more than $150 billion in gross margin. 

This indicates that climate change won’t necessarily negatively impact commodity investing and could even send asset prices higher. As a result, we could see more investors seeking to navigate market volatility to outmaneuver rivals in unlocking the potential of unpredictable market circumstances. 

This could pave the way for the adoption of more complex AI and machine learning algorithms that seek to move quickly to decipher unstructured data to make fast decisions to manage commodity-focused portfolios. 

The uneven impact of climate change will be the source of significant challenges and opportunities throughout commodity markets in the years to come. Let’s take a deeper look at how this change could look in practice and what investors can do to embrace a new era of volatility: 

The Age of Volatility

Commodities have been an increasingly popular means for asset managers to diversify their portfolios in recent years. 

Despite this, many climate change risks such as extreme weather events like drought, floods, wildfires, and cyclones, as well as climate transition risks like regulatory and policy actions, can all impact the performance of firms and financial institutions.  

These challenges don’t simply affect commodities from the perspective of institutions, but can severely impact the commodities as tangible assets to match production goals and consumer demand. 

Factors like excessive rainfall, heat waves, floods, desertification, drought, and harmful storms could directly affect agricultural production, while these factors could also harm fuel supply, energy production, and the resilience of energy infrastructure as a whole. 

Mining activities can also be affected by natural disasters, impacting metal supplies too. This illustrates the sheer scale of the climate crisis and its influence throughout the entirety of the commodities market globally. 

As a result, price volatility and financial speculation are certain to increase while institutions are set to invest heavily in the analysis of climate risks throughout commodity markets to help generate greater agility in response to changing sentiment and policymaker whims. 

The Uneven Impact on Food

One of the most volatile commodity markets affected by climate change is agricultural soft commodities. 

PwC data shows that rice, maize, and wheat production has experienced rising exposure to risks surrounding heat stress and drought. Rice production has already been increasingly exposed to heat stress, and forecasts suggest that around 90% of rice production will be impacted by significant, high, or extreme heat stress by as soon as 2050. 

Elsewhere, less than 1% of maize and wheat production face significant or higher drought risk today. However, by 2050, these proportions will accelerate to more than 30% and more than 50% respectively in a high-emissions scenario. 

What does this mean for the value of the commodities on markets? Added scarcity can actually help the value of crops affected by climate change increase. 

We’re seeing this in action with the value of cocoa. Due to factors like drought, pests, and diseases, cocoa production among major exporters like Ivory Coast and Ghana has fallen drastically in recent years, pushing the price of chocolate far higher. 

Prices of chocolate soared to $12,000 per metric ton in December 2024, amounting to an increase of nearly 90% in three months, and nearly triple its value from the year prior. 

The prospect of falling global cocoa inventories has caused the value of the commodity to rise sharply. However, another factor associated with climate change could see markets calm in the future. As global temperatures rise, we’re seeing more countries gain the warmer climates needed to produce cocoa. As more of Europe and North America gain access to domestic production, we could see the value of the commodity fall as supply once again matches up to demand. 

These examples are prevalent throughout the commodities landscape and require investors to become far more adaptive when it comes to understanding the role of climate change and the price of commodities. 

Out-Innovating Commodity Risks

We’re already seeing the artificial intelligence revolution throughout the investment landscape improve the management of volatile commodity prices at scale for innovative institutions. 

There are many ways in which the monitoring of structured and unstructured data points can help to improve the quality of commodity risk management for investors. For instance, utilizing bulk satellite images to monitor pollution levels at global sites can help investors pinpoint changes in manufacturing productivity. This can point to factory closures, or changes to shipping traffic patterns, for instance. 

Satellite imagery can also help hedge fund managers to view the supply chain at ground level. Increases in shipping containers at ports and spikes in rail activity could be monitored with the help of satellites and machine learning analytics. 

These variations and early production indicators can be useful for institutions and open the door to using commodity CFDs offered by broker dealers as a means of hedging bets against volatility between different commodities. 

Navigating Climate Change

While some markets are quick to factor in climate change and its impact on respective commodity prices, increased volatility throughout many different markets can provide levels of risk that institutional investors thrive on. 

Climate risk assessment methods are still developing, and hard to quantify even for the most resourceful of hedge funds today. With this in mind, investors who display the agility and adaptability needed to quickly adapt to changing market outlooks can gain an advantage when it comes to finding opportunities amid the risky climate outlook. 

Climate change will be a challenge that will affect virtually every financial market at some point. For commodities, these challenges are already here. Only the best-prepared investors will be capable of finding opportunities amid the volatility.

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