October 17, 2024
Despite the anti-ESG backlash, US financiers overwhelmingly agree climate-related risk strategies are “crucial”. 79% see fossil fuels as “uncertain” and “unattractive” investments beyond the next 5 years.
The Climate Opinion Research Exchange (CORE) has published data for the first time from a global survey of major institutional investors. The survey, conducted in multiple waves by FT Longitude since 2021, looks at the opinions of senior professionals responsible for investment decisions across insurance, asset management, banks, endowments, hedge funds and pension funds in the United States and 13 other countries.
By 79%, US investors find that “the uncertain future of fossil fuels makes investing in the sector unattractive beyond the next 5 years”. This finding is mirrored in the data set’s global results with 81% of investors across geographies agreeing. This holds even more true with the largest participants — 86% of institutions managing $50bn or above agree that the fossil fuel sector represents too much volatility.
US financiers are increasingly prioritizing renewable energy. Investor confidence in renewables has risen more steeply in the US than anywhere else, with US investors now assessing renewables as the most prudent of any energy investment and ranking renewables first place for predicted ten-year returns. 87% of U.S. investors assess renewables as prudent, up from 69% in summer 2023. More than 4 in 5 respondents are planning to increase investment in renewables over the next three years — the highest figure (83%) across all energy sources, including gas. While oil is expected to generate the highest returns in the short term, the spotlight shifts dramatically to renewables over the next decade, with 63% of U.S. investors expecting the highest ten-year returns from renewables.
Despite high-profile attacks against ESG, this data reflects a strong confidence by US financial institutions in the growing profitability of renewable energy sources as the US — and the world — transitions towards a lower-carbon economy.
Indeed, the majority of US investors (72%) have affirmed that integrating climate-related risk into investment strategies is “crucial”. Again, the global finding is within 2 points of the US, with 70% of investors across geographies also affirming the critical need to integrate climate-related risk. Large financial institutions ($50 billion or more AUM) are again slightly ahead of the pack, with a full three-quarters of respondents in agreement.
Right-wing political machinations to force continued investments in fossil fuels have sought to delay the shift away from polluting industries. However, the investment opportunities tied to clean energy as well as the financial risk of prolonged exposure to fossil fuels are clear. According to these findings, institutional investors recognize that the energy transition is underway and are preparing to allocate their assets accordingly.
Quotes
Gernot Wagner, climate economist at Columbia Business School said: “Despite anti-ESG attacks and other desperate attempts to extend the lifetime of the fossil fuel sector, US investors can see the writing on the wall. The data show that even medium-term exposure to such a volatile sector is not going to cut it with the vast majority of investors. Renewables are clearly viewed as the better bet, ultimately. That’s the market at work.”
Sonia Kowal, President, Zevin Asset Management said: “The energy sector is undergoing a significant transformation as long-term investors increasingly shift away from traditional fossil fuel based energy toward renewable energy. Investors recognize that renewable energy offers lower long-term risks compared to fossil fuels, which face growing regulatory pressures, environmental liabilities, and an inevitable decline in demand. This growing confidence in renewables reflects their potential as more sustainable, resilient, and higher-yielding investments. With rising commitments from governments and corporations to achieve net-zero emissions, renewable energy is poised to be the clear winner in the energy transition, and capital flows into renewable projects are set to accelerate.”
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.