Renewable energy infrastructure is set to benefit from global institutional investors divesting from fossil fuels over the next decade, according to a new report by Octopus Renewables.
The report – ‘The Great Transition: Opening the Renewables Floodgate’ – found that institutional investors plan to divest 15.6% of their portfolios from fossil fuels over the next 10 years.
The findings are based on a survey of institutional investors representing $5.9 trillion under management.
Octopus said that among the survey sample alone, planned divestment will see $920bn moved out of fossil fuels over the next decade.
Institutional investors aim to ramp up allocations to renewable energy infrastructure to 5.2% over the next 12 months, which will more than double to 10.9% by 2029.
This represents $643bn being ploughed into renewables over the next 10 years by the Octopus survey respondents.
The report also found that global financial institutions – particularly those in the UK – are optimistic about their ability to slow global warming, with 71% of institutions surveyed globally stating that they believe investment strategies could be used to make a material difference to climate change outcomes.
A majority of respondents (69%) said they believed renewables can play a significant role in tackling climate change and demand for these assets is growing.
Since Octopus first surveyed institutional investors in October 2018, demand for access to renewable energy assets has risen by over a third (37%).
However, the report noted that a smaller but still significant proportion of institutional investors remain resistant to tackling global warming through their investment strategies, with more than one in five respondents (23%) yet to make any change to their portfolio in response to climate change.
Separately, 16% of institutions surveyed have no allocation to climate-saving sectors at all, accounting for around $1 trillion of assets under management.
Among this group alone, there is significant capital which could be deployed as investment into renewable energy infrastructure, Octopus said.
Institutions surveyed by Octopus identified a number of barriers to greater investment in renewable energy infrastructure.
Almost half (45%) of global respondents cited energy price uncertainties as a key blocker, followed by a lack of renewable energy investment skills within the organisation (36%) and liquidity issues (19%).
Octopus Renewables co-head Matt Setchell said: “Our children’s futures will be shaped by decisions that are made now by the global investment industry.
“Given the scale of the challenge and the limited time we have to make a change, the guardians of trillions of dollars of capital have a crucial role to play in averting a climate crisis.
“While the report provides a glimmer of hope that this change will happen, we can’t rely on divestment from fossils fuels as the only answer.
“It’s disappointing that the proportion of capital divested from these assets and reinvested into climate-saving causes such as renewables and clean tech isn’t higher.
“If we are to unblock investment into these areas, institutional investors will need to become comfortable with different types of investment risks.
“This in turn demands better, wider-ranging products to accommodate institutional investors’ objectives, so more of them feel ready to divert funds into assets that will help save the planet.”
Octopus Renewables co-head Alex Brierley said: “Transitioning to a renewable energy future is challenging, but vital, and we still need to make bolder commitments on this front.
“Institutional investors can play a critical role in reaching this global goal by galvanising capital towards renewable energy infrastructure.
“While there is significant work to be done here, we are optimistic about the future. Our research shows an increased demand from global respondents for greater access to renewable energy infrastructure.
“We are seeing a growing awareness that the asset class can both generate long-term, stable returns for investors and have a positive impact on climate change.”