Publicly traded renewable power portfolios have posted “significantly higher” investor returns and shown lower volatility than fossil fuels, over the past decade and during the Covid-19 crisis, according to a study by Imperial College.
Renewable power is outperforming fossil fuels in major American and European stock markets, but total investment in clean energy is still falling “well short” of the level needed to “put the world’s energy system on a sustainable path”, research by the Centre for Climate Finance and Investment at Imperial College Business School found.
Imperial’s study is the first in a series of reports with the International Energy Agency examining the financial attractiveness of the renewable power sector.
In the report the performance of listed companies in the US, UK, and Germany and France engaged in fossil fuel supply was analysed versus those active in renewable power over the past 10 years.
The results indicate that renewable power shares have offered investors “significantly higher” total returns relative to fossil fuels. Annualised volatility is also lower across the board.
In an analysis of the US portfolio over the period January-April 2020 Imperial found renewable power companies held up better than fossil fuel companies during the Covid-19 pandemic, which suppressed demand and generated unprecedented losses for the oil industry.
The study has identified a set of “key challenges” for investors seeking to increase stock market allocations towards renewables.
The report stated: “The renewables listed universe today is small cap / low liquidity. With the regulations facing most asset managers and institutional investors, most renewable energy securities would not be an eligible investment.
“There is a lack of depth in the renewables universe in public equity markets. While a larger set of opportunities exist in private equity markets, they are not accessible to individual investors.”
Centre for Climate Finance and Investment at Imperial College Business School executive director Charles Donovan said: “There’s momentum gathering behind renewable power, based on its economic advantages.
“Our results show that renewable power is outperforming financially, but has still not attracted sizable support from listed equity investors.”
He added: “The research highlights the challenges facing investors of accessing the growth potential of the renewable power sector via public equity markets.
“Existing norms in the investment industry will have to change to provide savers and pensioners with better ways to participate in the upsides from a clean energy transition.”