On the go: Four in five institutional investors predict an increase in their exposure to renewable energy infrastructure in the next five years, according to a new survey.
Research by energy provider and investment group Octopus revealed strong support for green power projects globally, at a time when UK politicians and the country’s central bank have sought to direct flows towards such assets with a firm push.
As part of a package of measure including green gilt issuance and mandatory reporting in line with the Task Force on Climate-Related Financial Disclosures, the Treasury has announced its intention to launch a Long-Term Asset Fund next year, to facilitate greater investment in renewable illiquids.
Defeated amendments to the pension schemes bill went even further, while Bank of England governor Andrew Bailey said in a November speech that regulations would need to be altered to allow defined contribution schemes to play a larger role in a green recovery.
Experts have expressed concern at the potential infringement of legislation on the fiduciary duty of pension trustees to their members, but the Octopus survey showed there is already a strong appetite for green, cash-generative investments.
The vast majority of investors expect to increase their allocations to green energy, to an average 8.3 per cent of their portfolios in three years, and 10.8 per cent within the coming decade.
Europe was the most popular geography for investment, with respondents less certain of the political support offered in other key markets such as the US. In justifying their views, 53 per cent of those polled pointed to stable and predictable cash flows as attractive characteristics.
However, barriers remain to larger allocations. Forty-three per cent of investors cited liquidity issues as a concern, while energy price volatility and lack of internal expertise were also prominent reservations.
The Covid-19 pandemic has also had an impact. Both the anticipated pace of allocation to renewable infrastructure and of divestment from fossil fuels look to have slowed this year, although allocations are expected to pick up again in 2021.
Alex Brierley, co-head of Octopus Renewables, said:“Alongside governments, specialist energy fund managers, like ourselves, need to ensure we make investments more accessible and encourage greater investment in renewables and divestment of fossil fuels. We also recognise that there will be multiple routes to market and that investors will be at different stages of the journey.
“But understanding of the asset class’s ability to provide stable, long-term returns, while helping save the planet is growing. It is critical we use this momentum to drive further positive change.”
