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Investors shift to renewables, but leave money on the table

StreetTalk – Episode 69: Banks left with pockets full of cash and few places to go

Street Talk – Episode 69: Banks left with pockets full of cash and few places to go

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Investors shift to renewables, but leave money on the table

Global investors are planning to step up their spending on renewable energy while divesting from fossil fuels, but many are still holding off on portfolio changes to address the growing awareness of climate change, a survey has found.

Asset manager Octopus Group said in a report released Oct. 14 that 100 institutional investors from around the world are set to ramp up their allocations to renewables to 5.2% over the next 12 months and increase them further to 10.9% by 2029 — equal to $643 billion in additional investment.

The same institutions are planning to nearly triple their divestment from fossil fuels over the same period, pulling $920 billion from industries such as coal and oil and gas over the next decade, according to the report.

While a portion of the freed-up capital appears to benefit clean energy infrastructure, the report noted that it also shows a lot of money is left on the table. In total, money divested from fossil fuels is only reinvested into renewables by 24% of respondents in Europe and 12% in the U.S., the survey found.

"It's disappointing that the proportion of capital divested from these assets and reinvested into climate-saving causes such as renewables and clean tech isn't higher," Matt Setchell, co-head of Octopus Renewables, a specialist clean energy investor owned by Octopus Group, said in a statement.

"If we are to unblock investment into these areas, institutional investors will need to become comfortable with different types of investment risks. This in turn demands better, wider-ranging products to accommodate institutional investors' objectives," Setchell said.

Octopus Group manages more than £8.5 billion on behalf of retail and institutional investors and also owns U.K. electricity and gas supplier Octopus Energy Ltd.

The report was based on an online survey of 100 institutional investors from the U.K., the wider EMEA region, Asia and the U.S. The respondents, representing an estimated $5.9 trillion of assets under management, included pension funds, fund of funds, insurance companies, private banks, sovereign wealth funds, endowments and foundations.

High-profile climate campaigns and government targets like the U.K.'s net-zero emissions commitment are partly driving the shift to green energy, Octopus said. About half of the surveyed institutions said they have "reconsidered" their investment portfolio after climate change activism has risen over the past year.

But more than a fifth of respondents have yet to adapt their portfolios in response to climate change and 16 of the investors, representing $1 trillion in assets, have no allocation to "climate-saving" sectors like renewable energy infrastructure at all.

Among the barriers keeping investors from pouring more money into renewables, Octopus identified energy price uncertainties, a dearth of investment skills relevant to renewables and liquidity issues.