On the go: Institutional investors’ appetite for renewable energy infrastructure remains strong, and asset managers have not reduced return expectations despite an increasingly competitive marketplace, according to a new report by Bfinance.
Environmental, social and governance agendas, coupled with generally increased interest in infrastructure assets, have boosted demand for renewable energy infrastructure, the report stated.
Demand has been further enhanced by the Covid-19 pandemic, which “threw a spotlight” on renewables, while energy price volatility highlighted “the sensitivity of renewable energy assets to merchant power prices, while at the same time reduced energy consumption provided a glimpse into a future where renewables represent a greater proportion of global power generation”.
The increasing focus on ESG criteria by institutional investors like pension funds has led some to invest more capital in renewable and climate-friendly infrastructure than they were doing before the pandemic.
The report shows that 55 per cent of investors polled planned to invest more in renewable energy infrastructure as a result of the pandemic, while 33 per cent intended to keep their level of investment steady, and only 3 per cent expected to reduce the amount they invest.
This demand has had an impact on asset managers, who are increasing the number of dedicated funds and strategies, the report stated. Managers now fundraise for more than 65 strategies, while in 2019 that figure stood at 50.
However, the report sounded a note of caution around ESG standards. Although it claimed standards are generally improving, it stated that “careful analysis is needed to distinguish between substance and style”.
“The authors point towards asset managers that talk about their ESG capability, but have no ESG sections in their investment committee papers and even managers receiving ESG-related industry awards who have been found lacking when it comes to ESG integration in their investment process,” it explained.
Anish Butani, senior director of private markets at Bfinance, said: “Although renewables seem to be the way forward for global energy production, we are now entering a new phase for the emergent asset class of renewable energy infrastructure.
“The economics of this asset class are fundamentally changing with the overall withdrawal of subsidies and the development of the technologies. With more competition than ever, both from a fundraising perspective and an investment perspective, managers are having to be creative and adapt to the new climate.”
