The coronavirus pandemic has caused a slowdown in big investors pulling their money out of fossil fuels, potentially leading to a significant dip in so-called divestment over the coming years, according to a new survey by asset manager Octopus Investments Ltd.
In its annual report on sustainable investing, the firm found that the global institutional investors it polled, who manage a combined $6.9 trillion, divested only 4.5% of their portfolios in 2020, compared with a forecast of 5.7% captured in Octopus' survey from 2019.
Looking ahead, the dip could be even more significant: the surveyed investors said they expect to divest 5.2% over the next five years and 8.6% over ten years, a steep cut from the 14.4% and 15.6% they had previously forecast over the same time periods in last year's poll.
The reappraisal caps a year that started with BlackRock Inc.'s announcement in January that it would tighten investment criteria for coal producers and generally lower its exposure to fossil fuel companies, hailed at the time as a sign that the divestment movement was gathering critical pace.
Other institutions have continued to announce similar policies this year: Sweden's state pension fund said in March that it would divest from fossil fuels and Cambridge University in the U.K. announced in October that it would rid its £3.5 billion endowment fund of fossil investments by 2030, following a similar decision by the University of Oxford. Even the Vatican called on the world's 1.3 billion Catholics to ditch fossil fuels and put money into renewable energy instead.
To date, about $14 trillion has been divested from fossil fuels globally, according to Octopus, up from $52 billion in 2014. The firm said in its report that the change in long-term divestment forecasts could be "symptomatic of the current political and economic uncertainty in light of the virus", but also pointed out that many of the polled investors took issue with uneven signals from governments.
While they may be slower to divest, the investors polled in the survey said they planned to almost double their money allocated to renewable energy infrastructure over the next five years, from 4.2% to 8.3%. Over the next ten years, that is expected to increase to 10.8%, or $742.5 billion of additional investment from the cohort.
Those numbers are not far off last year's forecast, when the survey found investors planning to increase their allocations to 10.9% by 2029.
Octopus surveyed 100 institutional investors from the U.K., EMEA, Asia and the U.S., including pension funds, fund of funds, insurance companies, private banks, sovereign wealth funds, endowments and foundations.
Investors in Europe, the Middle East and Africa are set to see the highest increase in allocations to green energy, followed by the U.K. The U.S. is far behind: investors there expect to grow their renewables spending from 3.5% to 6.1% over the next five years, compared with an increase from 4.6% to 10.1% in EMEA.
Renewable energy has remained fairly resilient throughout the pandemic, with clean energy groups like Ørsted A/S and Iberdrola SA buoyed by stable revenues for their assets that largely insulated them from market turbulence. While oil companies have been forced to slash capital spending, Iberdrola, one of Europe's largest utilities and a major investor in wind and solar power, saw record investments in 2020.
As some companies and governments try to steady themselves from the coronavirus crisis, the renewable energy sector is also attracting new money from government spending plans focused on a green recovery, particularly in Europe.