EUROPE - A lack of long-term policies has cut institutional investor appetite for low-carbon investment, according to research conducted by international law firm Norton Rose on behalf of the Institutional Investors Group on Climate Change (IIGCC).

Nine out of 10 asset managers interviewed said changing policy and retroactive policymaking at the member state level, in the absence of guarantees for grandfathering of existing investments, were barriers to investment in renewable energy.

Other barriers to investment included permitting and planning problems (55%) and grid access and infrastructure issues (45%).

Ole Beier Sørensen, chairman at the IIGCC, said: "Investments in renewable energy projects are very long term and generally only possible if assisted by policies that support a relatively safe long-term assessment of expected risks and returns.

"Where the credibility of support mechanisms for existing investments is called into question, future private investment in renewable energy and other climate-relevant activities will be severely curtailed, or there will be the risk that the price of raising capital for these investments will increase."

The research found that the EU emissions trading scheme (ETS) had yet to provide investors with the strong, long-term price signals necessary to commit to long-term low-carbon investments at scale.

Less than 10% of respondents said the EU ETS had provided a strong enough price incentive to switch from carbon-intensive to less carbon-intensive investments.

Moreover, not a single respondent felt the ETS had provided long-term price signal certainty. 

However, 63% of respondents said setting caps lower and sending the carbon price higher was among the measures that would incentivise low-carbon investments, while 50% of respondents saw a long-term and detailed roadmap out to 2030, even in the absence of international action, as one of the most important drivers for shifting investment sentiment.

The research also highlighted that the apparent deadlock on whether or not to move to a more ambitious short-term emission reduction target - for example, to 30% by 2020 - was causing uncertainty among investors.

While such a target is likely to lead to a higher carbon price, as well as stronger incentives for investment, the survey found that most respondents were unable to articulate how they expected a move to a 30% target would affect their business or the market generally.

IIGCC members include AP1-AP4, APG Asset Management, ATP, the Environment Agency Pension Fund, Hermes, PGGM Investments and USS.

A full list of members and the report can be found here.
 

Topics