There will be an asset shift away from fossil fuels to the tune of US$920 billion over the next 10 years, according to a survey of global institutional investors that represent US$5.9 trillion under management.
Clean energy investor Octopus Renewables revealed, in its report The Great Transition: Opening the Renewables Floodgate, that institutional investors intend to divest 15.6% of their portfolios from fossil fuels over the next decade – with renewable energy infrastructure set to benefit amid plans to ramp up allocations there instead.
Based on the poll responses, Octopus approximates US$643 billion will be poured into renewables over the 10-year period.
The report also found that global financial institutions, particularly those in the UK, are optimistic about their ability to slow global warming. Of the institutions surveyed globally, 71% said they believe investment strategies could be used to make a material difference to climate change outcomes.
“Moves such as the UK government’s commitment to a net zero target by 2050, and high-profile campaigning activity including Extinction Rebellion and Greta Thunberg, are spurring global institutions into action,” asserted Octopus, which added that demand for access to renewable energy assets has risen by 37% since it first surveyed institutional investors in October 2018.
However, it appears that not everyone is sold on the idea.
“Despite these positive findings, the report suggests a smaller but still significant proportion of institutional investors remain resistant to tackling global warming through their investment strategies, with more than one in five respondents (23%) yet to make any change to their portfolio in response to climate change,” stated Octopus.
“Separately, 16% of institutions surveyed have no allocation to climate-saving sectors at all, accounting for around US$1 trillion of assets under management. Among this group alone, there is significant capital which could be deployed as investment into renewable energy infrastructure.”
Barriers cited include energy price uncertainties, a lack of renewable energy investment skills within the organisation, and liquidity issues.
Commenting on the report, Octopus Renewables co-head Matt Setchell declared: “Given the scale of the challenge and the limited time we have to make a change, the guardians of trillions of dollars of capital have a crucial role to play in averting a climate crisis. While the report provides a glimmer of hope that this change will happen, we can’t rely on divestment from fossils fuels as the only answer.
“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.”
Setchell is of the view that 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, so more of them feel ready to divert funds into assets that will help save the planet,” he added.
Meanwhile, co-head Alex Brierley had this to say: “While there is significant work to be done here, we are optimistic about the future. Our research shows an increased demand from global respondents for greater access to renewable energy infrastructure.
“We are seeing a growing awareness that the asset class can both generate long-term, stable returns for investors and have a positive impact on climate change.”