The research says that while institutional investors are continuing to shift away from carbon-intensive assets they are not moving fast enough to capitalise on the rapid growth of the clean tech sector.
That is the conclusion of new research from indexing firm MSCI.
It finds that despite strong predictions for growth in renewable power from organisations such as the International Energy Agency (IEA) the investments made by pensions funds and insurance companies are failing to keep pace with the indusry's expansion.
The British environmental news website BusinessGreen reports MSCI says this means institutional investors are missing out on potentially attractive returns as a result.
According to the IEA, the share of global energy consumption from renewable fuels, including wind, solar, and hydro, will increase from 21 per cent in 2010 to 25 per cent in 2020.
BusinessGreen reports despite growing political uncertainty in the sector, the falling cost of renewable energy technologies has seen wind or solar power reach cost parity with fossil fuels in countries as diverse as Germany, the United States, India, and Brazil, and investors have taken note.
MSCI's research found that nearly 10 per cent of power generation companies would increase renewable energy capacity by at least 10 per cent in the next five years.
These trends prove highly attractive to investors, whose "concern over mispriced fossil fuel assets or pressure from a persistent call for divestment" has seen many begin to scrutinise the carbon-related risks in their portfolios, MSCI said.
The firm calculates that if all the additional renewable capacity that is currently planned by these companies were realised, an investor replicating its broad MSCI All Country World Index would have increased its exposure to renewable generation capacity 22 per cent between 2013 and 2018.
This is more than quadruple the rate of growth in coal and gas capacity, but still falls well short of the 39 per cent growth projected by IEA for renewable power generation between 2013 and 2018.
BusinessGreen reports despite the expected growth in planned renewable energy capacity, the share of renewable fuel in the aggregate generation capacity of MSCI ACWI Index companies in 2018 would be 27 per cent, the same as coal and slightly ahead of gas on 25 per cent.
IEA's projected growth rates put the global installed capacity of hydro and other renewable energy at a 32 per cent share by 2018, overtaking both coal and gas.
"While the publicly listed equities universe will undergo a shift in the underlying energy mix, it may not capture all of the growth in renewables generation capacity that is happening in the real economy," MSCI says.
"In other words, without deliberately tilting more aggressively toward the companies with large and growing renewable capacity, investors potentially risk being under?exposed to significant growth in future fuel technology."
The report also looks at infrastructure investment, warning years of underspending have left many countries around the world with critical infrastructure that is incapable of supporting long-term economic growth and likely to be severely affected by climate-related weather impacts.
Worldwide, the upgrade bill could top US50tr by 2030 and with few governments able to find that level of investment losses associated with climate change related extreme weather events and projected sea level rise are expected to increase, with the scale of monetary losses far larger in developed nations.
"Of the 20 countries that are projected to have the largest number of people living in areas at risk of flooding, six are developed markets including Germany, Japan and the US; and nine are emerging markets, including some of the largest and fastest growing economies of the past decade such as Brazil, China, and South Korea," MSCI says.
"Nine countries, including the UK, Netherlands, and Japan, risk having more than four per cent of their population face chronic flooding."
BusinessGreen reports the firm argues that these various challenges present an opportunity for institutional investors.
Although MSCI says they will have to increasingly use environmental, social, and governance (ESG) factors to help "target growth opportunities in building climate resilience and to minimise governance?related risks" if they are to adapt to fast-evolving low carbon infrastructure trends.
Source: renewable-energy-events.blogspot.com
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