Institutional Investors Boost their Holdings in Renewable Energy Investments

Global carbon emissions, and global temperatures, continue to rise. July was the hottest month ever in recorded history, and widespread fires across the Amazon rainforest are helping to focus public attention on the climate emergency and the need to slash carbon emissions.

That need has never been more clear. A recent study from the UN’s Intergovernmental Panel on Climate Change (IPCC) concluded that avoiding catastrophic damage from climate change will require $2.4 trillion in clean energy investments — every year — from now through 2035, as well as slashing the use of coal-fired power plants to almost zero by 2050. That will require a dramatic rise in the use of renewable energy, especially solar and wind.

Luckily, clean energy is becoming ever-more economical, and solar and other new-energy projects are increasingly proving to be sound investments, with steady cash flows and solid returns.

A survey last year found that some 70% of public pensions and sovereign wealth funds expect to boost their exposure to infrastructure, a wide-ranging category that includes renewable energy projects, over the next two years. Another survey, published this year, found that global institutional investors with a collective $6.8 trillion of assets under management plan to almost double portfolio allocations to renewable energy over the next five years.

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Sure enough, a growing number of institutional investors are scaling up their support for solar, wind and other renewable power projects, either by investing directly in such projects or by pouring cash into funds that take stakes in those projects. These investments are likely to accelerate as the need — and the potential for investment returns — remain high.

Here’s a compilation of some of the largest examples of this recent investor activity.

  • Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ) has been very active in the space. In May, the pension struck a deal with solar developer Lightsource BP, through which CDPQ will make a debt investment of $166 million to finance a portfolio of more than 100 solar projects, spread across numerous countries and totalling more than 700 megawatts. Lightsource BP will own and manage the projects.

 

  • And last October, CDPQ invested $100 million with Azure Power, one of India’s largest independent solar power developers. That brought CDPQ’s total investment in Azure to $240 million; the pension now holds a 40% ownership stake in the company.

 

  • In June, Norway’s parliament instructed its $1 trillion sovereign wealth fund, the Government Pension Fund, to move up to $20 billion of its assets in renewable energy projects and companies. At the same time, the fund was instructed to divest from more than $13 billion in investments in smaller oil, gas and coal exploration and production firms. It won’t divest from major oil companies, however.

 

  • The New York State Common Retirement Fund said this year it will add $3 billion to its sustainable investment program, bringing the total to $10 billion. That figure includes $6 billion dedicated to sustainable investments, including clean energy and green infrastructure.

 

  • The Episcopal Church’s Church Pension Fund invested $40 million in the New Energy Capital Infrastructure Credit Fund II, a $500 million fund run by New Energy Capital Partners, in April. The fund will invest in a wide range of clean energy infrastructure projects, including solar, wind, storage, water and energy efficiency.

 

  • Earlier this year, the Washington State Investment Board invested $200 million with Geronimo Renewable Infrastructure Partners, bringing the pension’s total investment with the manager to $500 million. Geronimo says it has a “multi-gigawatt renewable energy portfolio of projects” under construction or in operation, as well as thousands more wind and solar projects under development across the country.

 

  • The Canada Pension Plan Investment Board announced late last year that it would invest more than $2.3 billion in renewable energy, and issued Euro-denominated green bonds worth €1 billion ($1.1 billion) to invest in assets like renewables, water and real estate projects.

 

  • South Korea’s National Pension Service said late last year that it would invest 150 billion Korean won ($125 million) with Shinhan Alternative Investment Management and another 150 billion won with Samchully Asset Management. Each manager will invest primarily in renewable energy assets within South Korea.

 

  • Also last fall, Toyota said it would back the new Mirai Renewable Energy Fundfrom Sparx Group. Sparx was looking to raise more than $250 million for the new fund, which invests in renewable energy projects including solar, wind, biomass, geothermal and hydropower, all of it intended to help Japan move away from a reliance on nuclear power.

 

  • Last August, the California State Teachers’ Retirement System committed $400 million to Capital Dynamics’ Clean Energy and Infrastructure VII fund, which will invest in utility-scale renewable energy projects across the country. Capital Dynamics closed the fund after raising $1.2 billion. Other institutional investors in the fund include Netherlands pension APG and the Abu Dhabi Investment Authority.

 

  • Also last August, Canada’s giant Public Sector Pension Investment Board partnered with Pattern Energy Group to acquire the 147 megawatt Mont Sainte-Marguerite Wind power facility in Quebec, with PSP paying $40 million for a 49% stake in the project.

 

  • Denmark’s Pensionskassernes Administration (PKA) said last year it will increase its investments in renewable energy to 10% of its total assets by 2020. Among its recent investments was the acquisition of Canadian Solar’s 49% passive equity stake in two solar projects for about $300 million.

 

Upcoming Event
To learn more about this trend, please register for our breakfast briefing, Managing Climate Risks & Decarbonizing Portfolios, on September 23rd in New York.

During this timely event, institutional investors, investment consultants, private bank gatekeepers, asset managers and climate experts will provide insight into how leading investors are assessing climate-related risks, increasing shareholder engagement and capitalizing on opportunities in the transition to a more sustainable economy.

Hear from Carbon TrackerImpax Asset ManagementJP Morgan Private BankISS-ESGRockefeller Brothers Fund, CDPInternational Finance Corporation (IFC) and others.  Register here.

 

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