Offshore wind farm

Investor confidence in renewables: it’s all about collaboration

By: Nigel Labram, investment strategist, Low Carbon
Published: Tuesday, December 15, 2015 - 09:00 GMT Jump to Comments

The government and the private sector must join forces to facilitate a positive renewable energy investment climate.

This year’s eagerly awaited Paris Climate Change Summit (COP21) saw global government officials gather together with the aim of signing a worldwide deal to help mitigate the negative effects of climate change.

This summit brought crucial issues to the global energy agenda, such as how developing nations can compete against first-world countries in the arena of climate finance, and saw high-profile businesses such as Google pledging to cut carbon emissions with six new renewable energy projects, ultimately inspiring staff, stakeholders and customers to ‘go Green’ in the year ahead.

It is clear from the discussions at COP21 that institutional investors can play a crucial role in the fight against climate change. Whilst high-profile institutional investors do have the power to influence and change perceptions, they cannot invest considerable amounts of their assets into climate change solutions without proper support from the government.

Governments across Europe must take considerable steps in creating legislation that enables a positive investment climate for the private sector. In a similar vein, institutional investors must do more to pressure governments into this action. The two sectors must collaborate on this issue - now and in the future.

What can the UK learn?

London is one of the most competitive financial centres in the world, and is well placed to become the global capital for climate finance in the future. But can our institutional finance community and the Department for Energy and Climate Change (DECC) be doing more to spur each into action?

In France and Scandinavia, for example, government legislation calls on investors to disclose and measure the carbon intensity of their investment portfolios. This ultimately incentivises investors to be more ‘climate aware’ than ever before, making investment decisions that yield strong, fixed financial returns whilst also saving the environment.

Moreover, similar action such as the Montreal Pledge, a commitment from the UN’s Principles for Responsible Investment body (PRI) to measure and publically disclose the carbon footprint of the entire investments from global members, was ultimately ‘pressurised’ into action in 2014 from large pension funds and institutional investors such as Calvert Investments and the Rowntree Charitable Trust. It is clear that the investment community has the power to influence change, even policy change- we hope to see more of this, specifically from UK- based investors in 2016.

Changing perceptions

In order for the government and the private sector investment community to collaborate more effectively on renewable energy investment policy, further education and awareness is needed. DECC, energy bodies and lobbying groups within government, can and must do more to educate investors as to the strong, inflation-linked and stable returns that are to be had from investing in climate change solutions such as wind, solar and hydro.

The days of investing in oil, for example are numbered- you may drill for oil, but you won’t always find it. Renewable energy such as solar PV on the other hand, generates electricity all year round and is a proven technology. Investing in renewable energy makes tangible financial sense- it is not all about ‘tree hugging’ and levels of awareness have to be raised to help improve the overall energy investment mix in the UK.

The art of ‘pester power’

The UK government and indeed the institutional investor community in the UK is up against one of the most savvy younger generations ever-  standing up for their values publically on social media, and rallying others to their cause faster than ever before. Armed with a thorough understanding of what is meaningful to them, it is the next generation that may truly hold the ‘pester power’. The young investors of today are more likely to consider how their investment decisions affect future generations, and indeed how they support and underpin their values.

With London School of Economics Professor, Lord Stern recently calling on the younger generation to hold their parents accountable on where exactly their money is going, the government and indeed the investment community must realise that they too will increasingly will be held to account for investing in or supporting fossil fuels over renewable energy sources in this day and age. Collaboration between consumers, retail investors, financial institutions and government is absolutely imperative to not only raise awareness of the benefits of renewable energy investment, but to help create a greener economy for future generations.

The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the official policy or position of The Information Daily, its parent company or any associated businesses.

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