Investors look for greener markets to reduce fossil fuel exposure

energy transition
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Although the pandemic disrupted the global economy, top global debt and equity investors continue to drive capital into the renewable energy infrastructure sector, according to the new report released by the Institute for Energy Economics and Financial Analysis (IEEFA).

This is owing to the consistency of the market in providing investment opportunities and the increased risks associated with investing in fossil fuel-related projects, according to the report, Global Investors Move into Renewable Infrastructure report.

The report clearly indicates that investors are being pushed away from fossil fuel assets to grab market shares within the renewables sector, thereby capitalising on energy decarbonisation and climate mitigation strategies being implemented globally by governments.

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Global investment in technologies enabling the energy transition has reached $500 billion in 2020, according to a new report, marking a 9% increase from investments made in 2019.

The technologies include electric heat, e-mobility, energy storage, carbon capture, and hydrogen. Amongst the low-carbon technologies, renewable energy dominates.

Annual investment in renewable infrastructure in 2020 increased 2% to $303 billion, or 60% of total investment in low-carbon energy transition assets last year. The electric transport and allied charging infrastructure sector received the second biggest portion of investment in 2020, at $139 billion (28% higher than in 2019).

In terms of geographies, investments are diversifying unlike in previous years when funding was mainly by investors in more developed economies in Europe.

Banks in Asia have also grabbed an increasing share in investments being made in energy transition technologies. Three Japanese banks: Sumitomo Mitsui Banking Corporation Group; Mitsubishi UFJ Financial Group Inc; and Mizuho Financial Group Inc, have also been included in the report, although the list of investors is still dominated by European banks.

Leading global banks are ramping up on the delivery of their commitment towards reduced fossil fuel exposure, building momentum to align with the exceptionally ambitious pledges of the 1.5à‚°C goal under the Glasgow Net Zero Banking Alliance announced in April 2021.

Report co-author and IEEFA Research Analyst Saurabh Trivedi, said: “US banks are conspicuous by their absence from our list of debt investors, having only recently started to join the global movement of investment into climate-focused sectors.

“Debt investment by large banks will be critical to achieving the Paris goals given that they own assets worth of hundreds of trillions of dollars.”

IEEFA’s Director of Energy Finance Studies, Australia/South Asia, Tim Buckley, adds: “Strong risk-adjusted return prospects and stable project cashflows, along with green economic stimulus packages, particularly from Europe, have helped to drive solar energy installation and a $50 billion surge in offshore wind power projects.

“Last year we saw the financing of the two largest renewables projects to date, the 3.6GW Dogger Bank offshore North Sea wind farm and the 2GW TAQA Al Dhafrah in the United Arab Emirates.

“These mammoth projects require investment on a staggering scale and we’re seeing global investors racing to deploy capital into the growing opportunities of the energy transition, which will grow into a multi-trillion dollar annual investment opportunity if the world is to deliver on its climate goals.”

Find out more about the report.

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