Meeting international climate and development objectives calls for a massive shift of capital into low-carbon technologies, including renewables. For the world to fulfil the climate goals set out in the Paris Agreement, total annual investments in renewable energy technologies would need increase from around USD 300 billion worldwide in recent years to almost USD 800 billion by 2050.
Institutional investors – including pension funds, insurance companies, sovereign wealth funds and other endowments and foundations – represent an enormous global capital pool that has yet to be harnessed for the energy transition.
This report from the International Renewable Energy Agency (IRENA) considers ways to attract institutional investors into the sector on the necessary scale. Its recommendations are aimed at policy makers, public capital providers, capital market regulators and other stakeholders, including major institutional investors that could channel capital into renewables.
Large-scale institutional investments would effectively inject long-term and relatively “patient” capital into renewables, lowering the overall financing costs for any given project. Renewable energy assets, in turn, can give institutional investors stable, long-term, “bond-like” returns.
The impact of the COVID-19 pandemic on global economic and financial systems has led institutional investors to look for new investments aligned with recovery plans. This could, in turn, boost capital allocations to renewable energy infrastructure to simultaneously hedge against climate risks.
Among other findings: