Report: Institutional investors to increase investment in renewables in next five years

Over one third of investors surveyed believe the Covid-19 crisis has made the fight against climate change more urgent, and renewables become more attractive.

The latest annual report from sustainable energy specialist Octopus, claims that 80% of global institutional investors surveyed plan to increase their allocation to green energy from 4.2% of their overall portfolios to 8.3% in the next five years.

Octopus’ findings are based on their survey from a number of global institutional investors with combined total assets of $6.9 trillion.

The report warns it won’t be possible to achieve the Paris Agreement and plans to reach net zero by 2050 without large amounts of investment into renewable energy generation and technologies. At the same time, large amounts of money will have to be pulled out of fossil fuels.

The report labelled ‘Renewables and the recovery’ also warned that the challenges, uncertainty, and economic downturn caused by the pandemic has slowed the pace of divestment from fossil fuels.

Over the next ten years, financers plan to reallocate 8.6% of the investments in hydrocarbons, down from a projected 15.6% last year. Now more than ever, governments, businesses and investors face an opportunity to concentrate on fighting climate change.

Alex Brierley, co-head of Octopus Renewables, said: “Covid-19 can be the catalyst to a greener more sustainable future.”

“But it needs to be a collaborative and organised effort from governments, institutional investors, specialist energy fund managers, banks and energy companies."

Despite the willingness shown by investors, the report warns of the challenges facing investment into renewable energy.

The first are concerns over the lack of liquidity involved in renewable energy investments. Once invested in most renewable energy forms, money is usually locked up for a set amount of time.

The second being the lack of joined-up international policies to fight climate change, making it harder to push for innovation in the renewable space.

Despite these challenges summarised, the report outlines a number of recommendations.  

The report suggests liquidity concerns need to be addressed, and countries need to be encouraged to work together, removing barriers to investment into clean energy. Government policies aimed at creating more renewable energy generation can go a long way to ease concerns.

The demand for sustainable energy is high, along with the appetite to invest among institutions.

The report states that while Covid-19 has made institutional investors cautious when moving investment away from fossil fuels, it can also act as a driving force for increased investment into renewable energy.

Governments must put lowering carbon emissions at the centre of Covid recovery plans, creating the opportunity for trillions of dollars of investment bringing us closer to the success in the fight against climate change.

Read the full Octopus report here.