October 17, 2024
With 81% of global investors believing the fossil fuel sector to be unattractive in the long term, and 80% of investors expecting to increase the level of investments in renewables over the next three years, a new survey shows the investor appetite for fossil fuel sources is on the decline.
The Climate Opinion Research Exchange (CORE) has published data for the first time from a global survey of major institutional investors. The survey, conducted by FT Longitude, looks at the opinions of senior professionals responsible for investment decisions across insurance, asset management, banks, endowments, hedge funds and pension funds in 14 countries.
The survey shows that investor confidence in coal has dropped rapidly in recent years. Globally, 76% of respondents expect their institution to decrease its coal investments over the next three years, a steep decline in confidence from 63% when surveyed one year ago.
In Asia, where the survey data stretches back to 2021, the share of respondents planning to invest more in the oil sector has dropped from 43% in 2021 to 28% today. Even fewer investors in the United States (20%) and Europe (15%) are planning further oil investments according to the latest survey. On average, investors globally expect to have stopped investing in coal by 2031 and in oil by 2036.
When asked what is driving their reductions in fossil fuel investments, respondents cited reputational risk (35%) and alignment with internal ESG policies (35%) as the top factors, followed closely by concerns about the risk profile (33%) of those investments. Risk concerns are particularly pronounced for coal: 76% of investors see the sector as a risky investment, up from 66% in early 2023. This is followed by 43% who see oil as risky, compared with only 2% for renewable energy or gas
This perception of risk seems to be coupled with expectations of underwhelming returns. The survey asked investors which of four energy subsectors (coal, gas, oil, renewables) they see offering the best returns on one, five and 10-year time horizons.
Over the next year, investors forecast higher returns from coal and oil than from other energy subsectors, whereas gas was seen as more promising over a five-year period. However, on a 10-year time horizon, all three fossil fuel subsectors were seen as offering weaker returns than renewable energy.
That combination of factors seems to be affecting long-term prospects and investor appetite for fossil fuels beyond a five-year horizon, as 81% of investors believe the uncertain future of fossil fuels makes investing in the sector unattractive beyond the next five years. That view drew with very high levels of agreement across all geographies and institution sizes, with the largest institutions expressing the strongest concern.
Quotes
Mark Campanale, founder and director of Carbon Tracker said: “We’ve seen the signs for some time, but these results confirm that fossil fuels are in the endgame. The next five years are looking like the very last chance to squeeze profits from oil and gas, with renewable energy providing high investor confidence on both profitability and risk in the longer term.”
Arjun Flora, Director, Europe at IEEFA said: “These trends concur with IEEFA findings that, despite geopolitical conflicts and a politicised ESG backlash, the market decline of fossil fuels continues – with a return to lacklustre long-term equity performance and a worsening credit outlook. Coal is heading out, oil is getting weaker, and renewables keep getting stronger as the energy revolution progresses. However, mixed regulatory signals on gas are clearly giving investors a false sense of security in the sector – the fundamentals of underreported emissions, weakening demand and upcoming oversupply have not yet been recognised. There is a short-sightedness that asset owners need to reckon with quickly.”
Agathe Masson, Sustainable Investment Campaigner at Reclaim Finance, said: “Coal is on its last legs, as the UK phase-out has shown. While it’s encouraging to see investors waking up to the risks of fossil fuels, the real challenge now is to walk the talk. Investors need to stop all new investments in companies that still develop fossil fuel projects now and use their votes to show their disapproval at company AGMs, voting against strategy decisions that are not aligned with net zero transition, including voting against the re-election of directors. Investors also need to channel investments into truly sustainable solutions. We must avoid false fixes to replace coal like LNG, or using expensive, ineffective, and unproven technologies like carbon capture and storage or co-firing with ammonia, which will only prolong the fossil fuel era.”
Survey Details
FT Longitude has been surveying institutional investors since 2021 on behalf of CORE. All survey respondents hold senior roles and have responsibility for investment decisions in their organisations, which span insurance, asset management, banks, endowments, hedge funds and pension funds.
The seventh and most recent wave of the survey was conducted from June 27 to July 31, 2024. It included 1,330 respondents from Asia (Hong Kong, Indonesia, Japan, Malaysia, Singapore, South Korea), Europe (France, Germany, Italy, Switzerland, United Kingdom), Australia, Canada and the United States. Prior waves of the survey in 2023 and 2024 included the same countries, while the first three waves in 2021 and 2022 were conducted on a smaller scale with only investors in Asia.
Contact CORE for more information.