Key points
- “Clean energy investment increasingly is driven by underlying investment fundamentals and quality of opportunity.”
- “Investors are most likely to become involved in primary market clean energy investment in the following ways:
- Investing in infrastructure or private equity funds;
- Direct project-level investment – e.g., infrastructure equity, project loans, bonds – principally by large investors;
- Buying securitized bonds or equity;
- Investing in green buildings – e.g., energy efficiency bonds;
- Funding the balance sheets of corporate developers – debt and equity.”
- “Institutional investors’ fiduciary obligations demand consideration of climate-related risks and climate solution opportunities across investment portfolios. Responsible investment, ESG and climate related governance are increasingly important areas of assessment for institutional investors.[…] In order to meet this challenge and tap related opportunities, investors should reassess their strategic asset allocation, acquire the right skills and capacity to evaluate low-carbon investment opportunities; and engage with relevant service providers, including investment consultants and credit ratings agencies”
- “Institutional investors should require their consultants to improve and accelerate the integration of climate factors — both risks and opportunities — into their strategic asset allocation and investment strategy reviews and recommendations.”
- “Investors should carefully assess their long-term views on the wider energy and infrastructure market, taking into account climate-related risks and opportunities, and should increase allocation to low carbon assets consistent with the well established principle of long-term risk diversification.”
- “Investors should consider setting a target and/or investing at least 1% of their total assets under management into lower carbon and renewable energy infrastructure”;
- “A broad range of clean energy investment vehicles is available to meet investors’ risk-return requirements”
- “Investors should take into account key differences between clean and conventional energy infrastructure, which increasingly favour clean energy as the sector matures.”
- “Investors should consider opportunities to ‘avoid the crowd’ by exploring rising opportunities in ‘Greenfield’ (i.e., pre-construction, development-stage project) investment; dispatchable clean energy; and direct loans to project finance.
- Greenfield investments have become more attractive as earlier-stage risks have become better understood and mitigated;
- Blending greenfield-stage exposure with operating assets in a diversified portfolio may assist investors in making their first move into the sector;
- Dispatchable clean energy is a key market gap, with technologies such as battery storage seeing significant cost reductions and increasing market competitiveness.”
While analysing the investment approaches for institutionaL investment in clean energy, the Ceres report gives an overview of clean energy investment vehicles available for institutional investors, comparing their key benefits.
The report also provides inputs on the risk/return variations depending on:
- the clean energy sub-sectors,
- the comparative risk exposure of conventional fossil fuel or nuclear energy investments,
- the stage of the asset life-cycle in question and,
- where applicable, the level of revenue contracting that a project has secured.