Institutional investors to increase allocations to sustainable investment sectors

A survey of UK pension funds and insurers that collectively oversee over £350 billion in assets, commissioned by AlphaReal, the specialist manager of secure income real assets, finds that 95% of respondents expect to increase allocations to renewable energy assets over the next five years.

Of those, more than one third (35%) will increase by up to 10%; 44% of respondents say they will raise allocations by between 10% and 20%; while 16% will boost by more than 20%. The remainder of respondents say there will be no change (3%) or a decrease (2%) in allocations to renewable energy over the next five years.

Corresponding to the rise in demand for renewable energy, UK pension funds and insurers responding to the survey anticipate an increase in the range of opportunities in the sector. One-third of respondents expect significant increases; 63% say there will be slight increases; and only 4% predict opportunities to invest will stay the same as they are today.

Looking at the current levels of pricing and valuations for UK renewable assets, respondents believe they are attractive. More than two fifths (42%) say valuations are very attractive; almost half (49%) say they are quite attractive; 9% say they are reasonable. 

Ed Palmer, CIO and Head of Sustainability at AlphaReal said: “Renewable energy is an important component in any sustainable investment strategy, offering long-term return potential while aligning with ESG objectives and playing a crucial role in the green transition. A greater range of investment opportunities in this sector will ensure pension funds and insurers are able to allocate to renewable energy both now and in the future.”

Boris Mikhailov, Head of Client Solutions at AlphaReal said: “It is not surprising that investors are looking at a wider range of investment opportunities. For example, battery storage is getting more traction in the UK as it could be a powerful return enhancer and diversifier of portfolios when combined with well-established and tested technologies such as onshore wind and solar.

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