A recent survey of UK pension funds and insurers, managing a collective £359.82 billion in assets, has indicated a significant shift towards renewable energy investments.
Commissioned by AlphaReal, a manager specialising in secure income real assets, the survey reveals that 90% of these institutions plan to augment their renewable energy allocation in the next year, with the remaining 10% considering similar moves.
The survey details that within the next 12 months, 8% of the respondents aim to increase their renewable investment by 4-6%, 12% target a 7% rise, 21% look to boost by 8%, and the majority, 59%, anticipate an increase exceeding these figures. Presently, 45% of the respondents allocate 11-15% of their investments to renewable energy, with 21% investing 16-20%, 16% allocating 6-10%, and 18% investing 1-5%.
Over a three-year horizon, projections show a more substantial shift towards renewables. A breakdown of these expectations includes 5% of the funds increasing their allocation by 1-5%, 7% by 6-10%, 21% by 11-15%, 39% by 16-20%, and 28% foresee a surge of 21% or more.
In terms of expected returns from unlevered renewable assets net expenses, 5% of the pension funds anticipate returns between 2.5-5% per annum, 54% between 5-7.5%, 38% expect 7.5-10%, and 3% aim for returns exceeding 10% annually.
The primary motivations for this growing interest in renewable infrastructure include income generation (85%), portfolio diversification (71%), and alignment with ESG investment objectives (68%). Additionally, 44% view renewable assets as a solid means for generating long-term cash flows, and 32% are motivated by the potential returns.
Regarding the need for immediate yield post-investment, 88% of the respondents consider this a requirement, while 12% do not see it as necessary.
Stuart Hanson, Associate Director, Client Solutions at AlphaReal, commented on this trend, saying, “Pension funds and insurers’ growing appetite for renewable infrastructure recognises that these assets can provide an attractive risk-adjusted return alongside positively contributing towards the transition to clean energy.”
