Global emergencies, inequalities and scandals are fuelling the transition to responsible investment. In this context, pension schemes can be a force for positive change. But how can schemes deliver what’s needed of them on behalf of savers, the economy and the world at large?
Last week, the Pensions and Lifetime Savings Association (PLSA) hosted its annual Environmental, Social and Governance (ESG) Conference to discuss the outcomes from COP26, what they mean for pensions, and how schemes can implement the recommendations and stay on course for net zero.
NextEnergy Capital
In one of the most notable talks from the event, Michael Bonte-Friedheim, founding partner and CEO of NextEnergy Capital, shared key considerations for UK pension schemes looking to invest in a clean energy future.
Founded in 2007, NextEnergy Capital has become a leading market participant in the international solar sector, being active in the development, construction and ownership of solar assets across multiple jurisdictions. Its assets under management stand in excess of $3.2billion, operating solar assets across four continents worth 2GW.
What do the investment characteristics of renewables look like?
The clean energy transition poses opportunities for institutional investors, but an understanding of the wider landscape is critically important for investors wishing to succeed in this area. As such, it is vital for pension funds to be aware of the key investment characteristics of investing in renewable energy assets.
Bonte-Friedheim highlighted the inherent stability of cash flows of renewable assets over the long term as being a factor which makes them very attractive for pension investors. Such assets are also somewhat protected against inflationary pressures, generating greater real returns in periods of high inflation relative to assets from other industries that are perhaps more vulnerable to large swings in the average economic price level.
From a risk perspective, Bonte-Friedheim added, renewable energy assets tend to be very resilient through economic cycles such as the Covid-19 crisis, further enhancing their attractiveness to pension funds.
The appeal of UK solar assets to pension funds
Although renewable energy assets in general are becoming increasingly enticing to pension funds across the world, NextEnergy Capital highlighted the appeal of UK solar assets as being of particular interest to investors.
The substantial increase of solar PV deployment in the UK has established the asset class as a fundamental part of the UK’s energy mix. With the deployment of solar growing rapidly each year, improving supply chains and components are allowing the UK market to benefit from economies of scale. According to NextEnergy Capital, this represents a very attractive high growth market opportunity for pension funds and institutional investors alike.
The commitments made in the UK’s Net Zero Strategy will unlock up to £90 billion of private investment by 2030, and support 440,000 jobs in green industries between now and then. The UK is on course to double its total solar capacity by 2030, further strengthening the case that the UK solar energy subsector is a compelling market opportunity.
Last but not least, NextEnergy Capital claimed renewable energy funds represent one of the cleanest and easiest ways to access ESG investments and satisfy investors’ ESG criteria. Together with having a positive financial impact through increased portfolio diversification, renewable energy funds have important community engagement and biodiversity attractions for investors.
