The global investment community is ready to embrace renewable energy, and there’s an opportunity for companies like Octopus to encourage large institutions to make greater investments into wind and solar in particular. That’s the view of Kat Shenton, Head of Renewable Fund Management at Octopus Investments.
I recently returned from a three-day Principles of Responsible Investment (PRI) conference held in Paris. PRI in Person is the world’s foremost conference on responsible investing, offering a platform for investment professionals and asset managers like Octopus Renewable Energy to learn, network and collaborate.
The 2019 PRI in Person conference was the biggest held yet, with more than 1,800 delegates and six different subject streams. Delegates had the opportunity to hear from more than 100 expert speakers from across the investment industry, discussing the latest innovations in responsible investment practice, and debating the impact of emerging environmental, social and governance issues and global trends. I wanted to highlight some of the main insights that came out of the three-day conference.
The event itself was huge, and featured an impressive range of guest speakers, including French President Emmanuel Macron and Werner Hoyer, President of the European Investment Bank. They were joined by a large number of CEOs from global pension funds. Throughout the three days, everyone spoke passionately about the imperative to tackle the climate crisis. This conversation was divided into two essential and related themes:
- The belief that financial markets have not adequately priced in the risks to existing investor portfolios from climate change impacts (such as flooding, conflict, etc)
- The moral and fiduciary duty to use investor influence to save the planet
Pricing-in climate crisis risks
According to analysis published by the PRI at the event, governments looking to tackle climate change are still falling significantly short of the commitments made under the Paris Agreement. As the realities of climate change become increasingly apparent, governments will be forced to act more decisively than they have so far.
The greater the delay in responding, the greater the potential cost. The question for investors now is not if governments will act, but when they will do so, what policies they will use and where the impact will be felt.
The PRI forecasts an Inevitable Policy Response in 2023-2025 that will be forceful, abrupt, and disorderly because of the delay. In other words, we can expect a chaotic policy “panic” as policymakers attempt to catch up to sufficient carbon reductions to save the world, literally.
Investor activism to help save the planet
The conference also focused on the onus, both moral and fiduciary, to use investor influence to save the planet. A high proportion of the large fund managers participating in the panels felt that it would be difficult to see how the world will cap emissions in line with the Paris agreement, unless asset owners drive change, aligning their portfolios to ‘net zero’ and demanding more from their asset managers.
Asset owners need to think about integrating climate risk into their strategy and implementation, and work more closely with regulators and other policymakers to create meaningful change across difference jurisdictions. As one panel member said: “With ownership comes responsibility”.
Interestingly, most of the conversation around this focused on engaging with their investee businesses to reduce emissions. It was rarely explicit (but I think taken as read) that they would invest more into “negative emissions technology”, like renewables, that would offset emissions that could not be removed from their portfolios.
Insight and analysis
Overall, it was clear that the global investment community is ready, and being encouraged, to invest into renewable energy as part of wider investment strategies. Renewable electricity from solar and wind now costs less than electricity generated from gas and coal. Add this to the fact that renewables can be implemented everywhere at huge scale, and the world is ready to reap a trillion-dollar renewable energy windfall (or “gigafall”).
But there is still, it seems, a perception among investors that investing in climate change mitigation comes at the cost of returns. Companies like Octopus have an opportunity to demonstrate to large institutional funds that – at the same time as clearly and demonstrably mitigating climate change – investing in renewables can also deliver an attractive risk-adjusted return and provide a natural hedge to risks carried in the wider portfolio. Not only can we help such institutions move towards ‘net zero’ funds, but we can also create ‘impact opportunities’ that drive countries, cities and regions to become net zero.
Despite the clear and present business case for renewable energy assets, no-one within the industry can afford to be complacent. As one delegate at the conference said: “We are all facing climate change, and we all need to act. There is strength in numbers”.
Kat Shenton is Head of Renewable Fund Management at Octopus Investments.