EUROPE - Institutional investor appetite for low carbon investment opportunities is being significantly dampened by policy changes, research shows.
Research conducted by Norton Rose on behalf of the Institutional Investors Group on Climate Change (IIGCC) found 90% of asset managers believed changing policy and retrospective policy-making in the absence of guarantees for grandfathering of existing investments was a barrier to investment in renewable energy.
Other barriers to investment included permitting and planning problems (55%) and grid access and grid infrastructure issues (45%).
IIGCC chairman Ole Beier Sørensen 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."
In terms of specific investment products, the research found that the EU Emission Trading System (ETS) has not provided investors with the strong, long-term price signals that are necessary to commit to long-term low-carbon investments at scale. Less than 10% of respondents said the EU ETS has provided a strong enough price incentive to switch from carbon-intensive to less carbon-intensive investments. In addition, not one respondent felt that the EU ETS had provided long-term price signal certainty.
Despite this negative outlook 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 incentivising a shift in 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 amongst 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 that most respondents were unable to articulate how they expect a move to a 30% target would affect their business or the market generally.
David Russell, co-head of responsible investment at the Universities Superannuation Scheme (USS) said: "The current uncertainty surrounding the emission reduction target, including potentially raising the target, is hindering the predictability of carbon prices and therefore investment decision-making across assets affected by climate policy.
"While a unilateral move by the EU to a more ambitious short-term emission reduction target would have positive implications for the carbon price and stronger incentives for companies and investors to shift into less carbon intensive investments, it is essential that there is a better understanding of the implication of such a move before the decision is taken."
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