42% of institutional investors to increase renewable energy allocations by 10%

Forty-two per cent of institutional investors that already invest in renewable energy are set to increase their allocation to the asset class by 10 per cent over the next five years, according to a report by Octopus Group.

According to its report on renewable energy, based on a survey of global institutional investors with a collective $6.8trn of assets under management, allocations to renewables will increase from 4.4 per cent to 7.1 per cent over the next five years. No institutional investors surveyed plan to decrease allocations to renewable energy.

The report revealed that increased allocations to renewable infrastructure is being driven by current market volatility and the perceived end of the market bull run.

Two-thirds (66 per cent) of renewable energy investors surveyed cite diversification as the main driver prompting them to invest in the sector.

This is closely followed by the pursuit of Environmental, Social and Governance (ESG) credentials, with more than half (58 per cent) of institutions invested in the sector choosing renewables primarily to fulfil ESG criteria. Almost half (48 per cent) cite predictable cash flows as a primary driver into renewable infrastructure.

Despite this, the report found that there are still a number of challenges to overcome, in order to open up additional investment in the sector. For example, 56 per cent of respondents identify energy price uncertainty as a challenge for them when pursuing investment in renewables. Forty-one per cent cite liquidity issues as a challenge and 34 per cent find costs to be a challenge.

Furthermore, 34 per cent believe that they do not have the size and scale to pursue renewables. A third cite government and regulatory barriers as a challenge to investing. Of those surveyed, the biggest factor that would cause them to increase investment in renewables would be better support and policies from the government (52 per cent).

The International Renewable Energy Agency estimates $1.7trn of investment is needed between 2015 and 2030 to meet global renewable energy targets to combat climate change. According to Octopus, investment from institutions in renewables will need to increase to deliver this required investment. To drive additional investment these challenges must be addressed.

Commenting, Octopus co-head of energy investments, Matt Setchell, said: “Institutional investors are waking up to the investment opportunity that comes with securing a renewable future. There is much to celebrate in the report.

However, while institutional investors’ contributions are on the increase there remains a long way to go to plug the funding gap. We cannot afford to view increased allocations as job done. More needs to be done to unblock investment to help tackle climate change. Acting now is not an option; it is a necessity.

“Our report identifies the key barriers that need to be overcome to enable institutional capital to support a renewables future. Clarity on policy from the government; flexible investment opportunities to suit investor needs and skilled managers who are able to identify and offset risks will be crucial to unlocking further institutional investment into the sector.”

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