Move Towards Ethical Investments

Investors are becoming increasingly aware of the role they have in slowing down climate change. Many are actively seeking renewable energy opportunities.

According to BNEF (Bloomberg New Energy Finance), “Clean energy is now a third-of-a-trillion-dollar industry, with a strong cadre of competitive suppliers, enjoying a generally supportive policy environment – now underpinned by the commitments made in Paris.”

Fixed Returns

Renewable energy can provide fixed, predictable income streams. Rates are usually underwritten by government feed-in-tariffs whereby the government guarantees a price of energy for the producer (more on this below), providing price certainty. In Italy, for example, where Solar 21 has its solar farms, we are guaranteed a price for each unit of energy we produce for a period of 20 years from grid connection.

Government Backed

Many of the governments that signed up to the Paris Agreement are supporting renewable energy production in the form of incentives that are paid per unit of electricity produced for a fixed period, usually 20 years. This is to give the technologies involved in producing energy from renewable sources a chance to catch up with fossil-fuel burning energy production. The result is a guaranteed market and price for the electricity in the long term.

Paris Agreement

COP 21 countries at the Paris meeting in late 2015 agreed to curb carbon emissions so as to keep the global average temperature increase at well below 2⁰C compared to pre-industrial levels. In November 2016, the agreement became binding when the 55 parties who produce over 55% of the world’s greenhouse gas ratified the agreement. Ireland and Britain are among the 169 countries to have ratified the agreement.

The Paris Agreement signals a global effort to increase the amount of energy countries derive from renewable sources.

Fossil Fuel Divestment

The Guardian reports that one-third of UK investors say they would like a fossil-free option for their savings. At the same time, institutional investors are undertaking large-scale fossil-fuel divestment. It is estimated that more than $5tn in institutional assets now have some sort of divestment strategy in place.

The trend brings with it a corresponding demand for renewable energy alternatives.

Diversification

Investments in renewable energies give investors the opportunity to diversify their portfolios, which may be overly exposed to one asset class such as property or equities. Property and renewables are uncorrelated asset classes, which means that it is less risky to have both in your portfolio because they are unlikely to react the same way in a downturn.

Steady Return

Renewable energy investments do not suffer from the same volatility as equities. This is because renewable energy production is supported by governments in the form of payments and incentives, which are usually set for 20-year periods. The price they command does not therefore fluctuate like the prices of stocks do.

Pension Schemes

Pension schemes may have to declare exposure to climate-change risk. The EU is placing responsibility on pension schemes to consider ESG (environmental, social and governance) factors as part of their overall risk assessment, particularly risks relating to climate change and the environment. From 2019, all pension schemes will need to outline their ESG policy in their annual reports to members.

Talk to your financial adviser today about incorporating ethical, renewable energy investments in your portfolio.