Institutional Investors Hungry for More Clean Tech Products, Experts Say

A growing number institutional investors are selling off their investments in coal, oil and gas companies, with many of the proceeds explicitly targeted for reinvestment into clean energy. That should be a boon for clean tech funds, project developers and others who would benefit from the large amount of assets that could flow from the so-called divestiture movement.

Yet while experts and proponents say the future is bright, they also say that it’s too soon to expect a lot of divested capital flowing into clean tech — and it’s even too soon to say how much has flowed so far. They also say investors want and need a greater set of clean tech funds and investments to choose from.

Among the latest investors to announce they’re getting out of fossil fuel investments are the University of Hawaii’s $66 million endowment, which decided earlier this month to divest from coal, oil and gas, and the University of Edinburgh, which says its £298million ($455 million) endowment will sell of its investments in three fossil fuel companies within six months. That move came after student protesters occupied the school’s finance department for 10 days.

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The two endowments join organizations like Stanford University, whose $25 billion endowment announced last year it would no longer invest in coal mining companies; the $16 billion San Francisco Employees’ Retirement System, which has been moving toward selling its $540 million worth of fossil fuel investments and reinvesting in clean energy; and the $866 million Rockefeller Brothers Fund, the foundation set up by the heirs to the Standard Oil fortune, which said in September that it would get out of oil, tar-sands and other fossil fuel investments.

The Rockefeller fund is one of the few divesting organizations whose re-investments are publicly known:  it put $15 million in an affordable green housing fund run by Turner Impact Capital and another $15 million in Generation Investment Management‘s Climate Solutions strategy, according to Barron’s. Rockefeller Brothers also invested $15 million in clean tech projects in Brazil through a Sao Paulo-based fund manager, according to Barron’s.

Other institutions aren’t as far along in terms of reinvestment. “I think each investor is at a different stage of their development,” says Jenna Nicholas, director of Divest-Invest Philanthropy, an organization that encourages foundations and other institutional investors to divest from fossil fuel investments and reinvest in clean energy. Another pioneer in the divestiture movement is the Wallace Global Fund, a family foundation, which Nicholas says is completely out of fossil fuels and now has more than 10% of its assets invested in clean energy. “They’ve been really active,” she says.

Other investors that have joined the movement more recently are “taking more time to develop a strategy around this,” Nichols says. “The commitment is generally to do this over the next three to five years. They’re being thoughtful about it, thinking about how fits into their broader asset allocation. They’re not rushing into things.” Of the 90 institutional investors who have pledged to divest, about a third have at least started to invest in clean energy, Nicholas estimates. “The rest are just at the beginning. ”

It’s too soon to get a good gauge on exactly where the assets are going, according to Ryan Strode of Arabella Advisors, which provides strategic advice to philanthropists and investors.  “The decision about how to reinvest these resources takes considerably more time than committing to divest, and it will be a while before we can quantify this.”

And numerous hurdles remain before the lion’s share of those resources are in fact reinvested, notes Bobby Turner, CEO of Turner Impact Capital, whose clients besides Rockefeller Brothers include the University of Michigans endowment. One of the biggest challenges for clean tech and social impact managers seeking institutional capital is that many investors in clean tech lost money during the global financial crisis. “So a lot of institutional investors who jumped on the clean tech bandwagon in 2008 remain very reluctant to jump back on,” he says.

Time passing has helped, as cleantech funds have been able to rebuild the positive track records that institutional investors need to see before they will invest. “Now we can see a number of track records that show that social impact investing can drive a great risk-adjusted return, with the additional benefit of little to no correlation to the broader market indices,” Turner says.

There’s also a significant “bottleneck” in the marketplace, Turner says: a “lack of qualified investment opportunities.” In fact, supply is probably the biggest challenge right now. “There’s a tsunami of capital looking for great investment opportunities in social impact, broadly defined,” he says. “But the bottleneck is how many great institutional quality investment advisors are out there with the product and authenticity that will deliver you risk-adjusted returns without wavering from fiduciary responsibilities and positive social impact.”

Organizations like Rockefeller Brothers Fund are signaling that they’re ready to invest once the product set is there. The foundation is planning to invest  10% of its assets to clean energy technologies “and other business strategies that advance energy efficiency, decrease dependence on fossil fuels, and mitigate the effects of climate change,” it said in a September statement. That figure is likely to grow in the future “as we actively seek solid investments that will advance both our program and long-term financial goals,” the statement said.

Indeed, managers would be well advised to work on developing cleantech funds, because as students pressure their universities to divest, and as pension funds start to follow the lead of foundations and endowments and divest as well, the tsunami that Turner sees will clearly continue to build. And according to Arabella’s Strode, the wave looks very likely to head right for clean tech projects and funds. Though the assets haven’t hit yet, “There is a lot of discussion in 2015 about opportunities to use these assets to help drive the transition to a clean energy economy,” he says.

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