Pension schemes increasing allocations to renewable energy

Nearly all (97 per cent) UK pension funds and other institutional investors will increase their allocations to renewable energy over the next year, new research from Downing LLP has revealed.

Downing’s survey, which received responses from 100 professional investors who collectively manage around £118bn in assets, revealed 80 per cent increased their allocation to renewables over the past 12 months, with 26 per cent making a dramatic increase and 54 per cent making a slight increase.

The research also found all renewable energy sectors are expected to attract more investment and, when asked to select their top five reasons for this, 74 per cent of those surveyed pointed to the asset class’s recent strong performance and 67 per cent mentioned the de-risking potential in volatile markets.

Other attractions of investing in renewable energy included the diversification potential (67 per cent); improved regulatory environment for investing in renewables (67 per cent); a growing focus on decarbonisation from pension funds and wealth managers (62 per cent); improved liquidity (60 per cent); a good hedge against inflation (55 per cent); and a greater pressure to invest in renewables (46 per cent).

Downing also discovered that hydro was the renewable energy that was most likely to see a dramatic investment increase over the next year, with tidal and wave energy thought to be the most likely for investment to slightly increase.

Biomass was revealed to be the most likely energy to see a decrease in investment in the next 12 months.

Downing Renewables and Infrastructure Trust investment director, Henrik Dahlstrom, commented: “As the renewables sector develops, it increasingly illustrates several features that investors find very attractive, especially in the current environment of low yields and rising inflation – both issues renewables can help investors to address.

“Renewable energy is central to UK institutional investors and wealth managers as they set responsible and ESG investment strategies. We have long capitalised on the diversification benefits of investing in renewable energy and as inflation bites and market volatility continues, allocating to the asset class will become even more important.

“It is important that investors can find genuine investment opportunities that help them meet their ESG credentials.”

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