As the world is growing increasingly conscious of the need to invest in cleaner and more sustainable energy to limit the impact of global warming, it’s no secret that a faster and universal renewable energy transition will require trillions of dollars of investment over the next couple of decades.
The trillion-dollar question is, who will foot the bill?
According to Bloomberg’s Nathaniel Bullard, the biggest future investors in clean energy could be the largest institutional funds that manage more than US$1 trillion of assets each. Basically, the money is out there, it just needs to be realigned to the demand for investment in renewable energy.
Demand exists. Bloomberg New Energy Finance (BNEF) has estimated that zero-carbon power generation is expected to attract US$9 trillion of investment until 2040.
According to BNEF’s New Energy Outlook 2017, “Renewable energy sources are set to represent almost three quarters of the $10.2 trillion the world will invest in new power generating technology until 2040, thanks to rapidly falling costs for solar and wind power, and a growing role for batteries, including electric vehicle batteries, in balancing supply and demand.”
CO2 emissions from the power generation sector are expected to increase by one-tenth before peaking in 2026. Still, an additional US$5.3 trillion investment in 3.9 TW of zero-carbon capacity would be required to keep the planet on a 2-degrees-Celsius trajectory, the NEO 2017 says.
According to the International Renewable Energy Agency (IRENA), the overall energy investment needed for decarbonizing the energy sector will require an additional US$29 trillion until 2050.
So where would those funds come from? According to Bullard, they could come from the biggest asset managers. Each of the top ten institutional managers—BlackRock, Vanguard, State Street, Fidelity, BNY Mellon, PIMCO, J.P. Morgan, Capital Group, Goldman Sachs, and Prudential Financial—has assets under management worth more than $1 trillion, with the leader BlackRock managing US$5.7 trillion in assets.
There is demand and there is supply, and the challenge now is to align them one to another, Bullard writes.
A growing number of investors want to know how their investments impact climate change. According to Bloomberg Gadfly columnist David Fickling, many of the biggest institutional investors have been backing shareholder resolutions on more disclosure about sustainability and climate change.
So far this year, shareholders have filed more climate resolutions with U.S.-listed firms than the combined number of such resolutions proposed for voting in 2015 and 2016, data by sustainability nonprofit organization Ceres shows.
Then there’s the fact that investors are chasing higher yields, and today’s investment-grade yields are much lower than before the 2007-2008 crisis.
According to the Global Financial Stability Report October 2017 by the International Monetary Fund (IMF), “there is too much money chasing too few yielding assets: less than 5 percent ($1.8 trillion) of the current stock of global investment-grade fixed-income assets yields over 4 percent, compared with 80 percent ($15.8 trillion) before the crisis.”
Institutional investors are looking not only at sustainable investment strategies—they are also chasing higher yields.
So the trillions of dollars necessary for zero-carbon energy is out there on the market. Could it be as simple as just aligning demand and supply by reallocating it to investments in renewables?
By Tsvetana Paraskova for Oilprice.com
