Specialist investment manager AlphaReal has found that the vast majority of UK pension funds and insurers will increase their sustainable investment allocations in the next five years.
AlphaReal conducted a survey of the pension funds, which collectively oversee over £350 billion in assets, and found that the funds are expected to shift their vast resources into sustainability measures, potentially opening up new decarbonisation opportunities and drawing in much-needed revenue for the UK’s net zero journey.
According to the survey, 35% of the respondents plan to increase their investments in renewable energy by up to 10%, 44% said they will raise their investments by 10% to 20%, and 16% plan to increase their investments by more than 20%.
Only 3% of the respondents said there will be no change in their investment plans, while 2% plan to decrease their investments in renewable energy over the next five years.
Another key aspect of the survey, and a positive note for the UK renewable energy sector, is that UK pension funds and insurers responding to the survey anticipate an increase in the range of opportunities in the sector.
AlphaReal’s research found that one-third of respondents expect significant increases, 63% believe there will be slight increases and only 4% predict investment opportunities will stay the same as they are today.
Ed Palmer, chief investment officer and head of sustainability at AlphaReal said: “Renewable energy is an important component in any sustainable investment strategy, offering long-term return potential while aligning with ESG objectives and playing a crucial role in the green transition.
“A greater range of investment opportunities in this sector will ensure pension funds and insurers are able to allocate to renewable energy both now and in the future.”
Pension fund mobilisation could unlock the energy transition
Further allocation of pension fund resources could be critical for the energy transition, particularly with the cost of the transition to a low-carbon economy vastly exceeding the capability of the public sector. In 2022, the New Economics Foundation (NEF) estimated that the UK would require £140 billion of private investment to meet its climate change goals.
Indeed, renewable investments must remain an attractive proposition to encourage investors to allocate more funding to the energy transition. On this, AlphaReal’s research found that the respondents found the current levels of pricing and valuations for UK renewable assets attractive.
Specifically, more than two-fifths (42%) say valuations are very attractive, almost half (49%) say they are quite attractive and 9% say they are reasonable.
With this in mind, ensuring political stability and creating an attractive region to invest in the low-carbon economy will be paramount, particularly with the upcoming general election.
