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IT’S TIME TO MAKE RENEWABLE ENERGY INVESTMENTS MAINSTREAM

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Helene Winch

Helene Winch, investment specialist at renewable energy investment company, Low Carbon shares her thoughts on divestment and why the finance community should look to make more responsible investments for a low carbon future, and for impressive returns.

Warren Buffet once said, “The investor of today does not profit from yesterday’s growth”. This utterance could not be more applicable to today’s diverse investment climate, where the widespread divestment ‘movement’ is gathering momentum and global recognition. Today’s investor needs to look ahead for growth opportunities and anticipate the impressive returns that are to be had from divesting stocks and equity from the fossil fuel sector, and reinvesting into renewable energy projects. It’s this mind-set that can help the UK create a low carbon economy for future generations.

It’s a matter of education

We only have to look through the papers of late to see the widespread attention that divestment is generating. High-profile individuals, governments and institutions such as the Church of England, Bill Gates, The Rockefeller Foundation and the Norwegian government have all vocalised their support for the divestment movement.  Furthermore, it has been reported that altogether individuals and organisations responsible for at least $50bn in investments have said they intend to sell all or some of their fossil fuel investments.[1] Such positive action and endorsement should not be underestimated, and can position divestment as an attractive weapon in the fight against global climate change.

Aside from helping to protect the environment, more needs to be done to prove that tangible financial returns are to be had by divesting from fossil fuels and re-investing into renewable energy projects such as large-scale solar farms and onshore wind projects, for example. The energy industry and investment experts can do more to educate institutional investors as to the significant, lower-risk returns that renewable energy projects can generate. This is a question of raising awareness as to these alternative investments that can improve the UK’s overall energy mix and carbon intensity and at the same time improve our energy security. After all, if we are to move to a low carbon economy, we need to invest more heavily in low carbon assets.

Proven technologies, proven returns

Make no mistake – renewable energy has a strong proven track record. Solar photovoltaic (PV) panels have been generating electricity for at least twenty years. The scale of solar PV projects and investment has significantly increased in that time, with corporate giants such as Apple realising the potential of investing in solar PV for its Silicon Valley HQ. Moreover, onshore wind power, also in its twentieth year, was described by the Department of Energy and Climate Change (DECC) as ‘the leading individual technology for the generation of electricity from renewable sources during 2014’.[2] The statistics are clearly there for all to see – debunking the myth that renewable energy is too ‘new’, or ‘unproven’ a technology.

We have recently been experiencing a large drop in the price of oil highlighting its volatililty. One day an investor may be confident she/he will see an impressive return, the next oil sector share prices drop. Renewable energy, on the other hand, is not volatile in the same way. Solar panels and wind turbines generate electricity all year round – you may drill for oil, but you won’t always find it. And even if you don’t believe in climate change as an investor, these renewable energy investments can stand up for themselves financially. They are typically long-term, inflation-linked contracts, generating attractive, stable returns.

Helene Winch

Helene Winch

Renewable energy projects are more often than not analysed as part of the private equity industry sector, rather than a form of core infrastructure – another myth here for us to debunk. Investments in the solar and wind sector, for example, are predicted to be the best outperformers (between 0.5% to 3.5% additional annual returns) over the next 35 years. Perhaps not so surprisingly, coal, one of the main focuses of the divestment movement, is predicted to be the worst performer (between -1.2% to -4.9% additional annual returns). It’s worth noting, the positive annual returns from renewables is similar in scale to the negative from coal.[3]

Most renewable energy projects are therefore, essentially infrastructure projects – the words ‘green’ or ‘renewable’ don’t often have to be mentioned at all. Moreover, over 40% of electricity demand has been met by renewable energy generation in recent years[4], which strongly suggests that renewable energy is a core, resilient electricity source that is here to stay.

The ’new age’ investors

According to a recent report – “Investing in a time of Climate Change” – commissioned by global investment consultancy firm, Mercer, we need institutional investors to take the on role of a ‘climate aware future makers’. These are pioneering investors who understand the impacts of climate change and can lead the charge in showing more risk-averse investors on how to invest into renewables. Future makers are those who realise that our FTSE 100 will not be dominated by BP, Shell or other fossil fuel stocks for ever, and that cleantech companies will slowly but surely creep onto this mainstream market. Finally, a climate aware future maker will look to apply the personal investments made in his/her personal life and apply this to his/her business life. “If I make such impressive returns with solar PV on my household roof for example, then how much money is to be made by investing in solar PV projects at scale?”

At present, there is no UK legislation in place that is motivating investors into investing in renewables. This is moving into effect in neighbouring France, with the government calling on institutional investors to disclose and measure the carbon intensity of their investment portfolio as well as informally in Scandinavia.  I hope to see this call to action and level of engagement emulated by governments in the UK and across Europe – this will ultimately create a more mainstream and positive renewable energy investment environment for years to come. It will help to  initiate more climate aware future makers for the task ahead.

The dawn of the divestment age

Divesting from fossil fuels and reinvesting in renewable energy has its clear benefits – it can help combat the negative effects of climate change whilst generating impressive, stable returns for our most pioneering and forward-thinking institutional investors. It’s not a gimmick to be dismissed, it’s not a myth. Investing in renewable energy presents strong growth opportunities now, and for future generations. In the UK, we are lucky to have some of the sharpest financial brains that are out there – no ‘problem’ is too big to solve. We hope to see more investors and financial institutions lead the charge in educating the industry on the true benefits of renewable energy investment in the thick of the divestment age.

[1]http://www.ft.com/cms/s/2/5ca02a4c-8792-11e4-bc7c-00144feabdc0.html#axzz3hYmuUlDS and http://divestinvest.org/philanthropy/signatories/

[2]http://blueandgreentomorrow.com/2015/07/31/official-figures-reveal-energy-ministers-error-over-onshore-wind/

[3] Estimated impact on sector returns compared to current expected returns of 6-7% per annum, second Mercer report, “Investing in a time of Climate Change”

[4]http://www.carboncommentary.com/blog/2015/6/7/new-record-for-uk-renewables-output

Investing

Are clients truly getting value from their BR solution?

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Are clients truly getting value from their BR solution? 1

By Matt Dickens, Senior Business Development Director at Ingenious

Financial planners and wealth managers strive to deliver on the needs of their clients by always providing the most suitable and effective advice. But as with any service, this advice should also be delivered at the best possible value for the investor. Value can be simplistically defined as the service that delivers the most benefit, balanced against the financial cost, but in the estate planning space, how do you assess what good value is?

1. Total fees and charges

Product fees are guaranteed to negatively impact returns, so it is important to minimise their impact when looking to gain the best value from the investment. Some managers report little or no fees paid by the investor to the manager, but instead charge the company or investment service itself. While this might initially be seen as better value for the investor, it is not as simple as that. Investors in unlisted BR services become a shareholder of the portfolio companies, so the reality is that any fees paid by the companies are effectively being paid by the shareholder (or investor). Therefore, both investor fees and company fees will both negatively impact the final return and must be considered together.

Analysis of what a manager is paid by the investor and by the company over a significant period will enable an adviser to conclude if the manager is offering good value, or if a disproportionate amount of fees is going to the manager at the expense of their investors.

2. Real investment returns

Another key component of assessing value is what the investment actually delivers. For BR solutions, investors’ main objective is commonly to pass on the maximum sum possible to their beneficiaries upon death. This may lead to a conclusion that delivering Inheritance Tax relief at the lowest possible cost is the primary driver of value. However, especially for clients with longer time horizons, the one-dimensional goal of avoiding a potential 40% Inheritance Tax bill can easily over-shadow the equally important goal of aiming to steadily grow the investment, preventing erosion by inflation, drawdowns and investment fees. Unlike some IHT-focused solutions, such as trusts or gifting, investors in BR services do not have to accept zero growth of their wealth from the point of investment.  Instead, investors can continue to earn returns, either taking an income stream or increasing the final sum to be passed onto their beneficiaries, precisely in line with their original objective.

While most BR managers predict their ongoing returns at a certain level, those targets are not guaranteed and historic performance varies widely.

3. The relationship between fees and risk

Given that the majority of managers in the BR space state their performance targets net of fees, to produce positive growth and achieve their target return, those managers must first earn back any fees they are taking. Let’s take the below scenario to illustrate this point.

 Are clients truly getting value from their BR solution? 2Manager 1

Annual performance target, net of fees: 3%

Annual fees: 3%

Gross performance target: 6%

 

Are clients truly getting value from their BR solution? 3Manager 2

Annual performance target, net of fees: 4%

Annual fees: 1%

Gross performance target: 5%

Initially, it might appear that Manager 2 must be taking more risk to target a higher net return of 4% than Manager 1, who is targeting 3%. However, Manager 1 has to deliver an additional 2% of gross return than Manager 2, to make up for charging higher fees. Higher fees not only impact returns and value, but they can also mean greater risk.

Market comparison

In the Tax Efficient Review’s most recent analysis of Unlisted BR Services1, they released data that ranks services in the market in terms of both investor returns and total fees. IEP Private Real Estate achieved the top rank for returns delivered, with the second lowest total fees in the market, demonstrating that it represents attractive value for investors in comparison to other services.

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Reuters Events Launch Global Investment Summit Online Edition Uniting Institutional Investors, Asset Owners & Financial Institutions

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Reuters Events – today announced the agenda for their Global Investment Summit (Dec 3rd -4th). The 2-day strategic summit has been reimagined in the era of social distancing and will be broadcast free of charge to the public.

This Summit, with a diverse range of international voices and anchored by Reuters News-led sessions, is the only place for institutional investors, asset owners and financial institutions to come to terms with the events of 2020.

Click for more information and for complimentary registration to the online edition

The Energy Transition team report an industry leading speaker faculty for 2020, including:

  • Eileen Murray, Chair, Finra
  • Philip Lane, Chief Economist, European Central Bank
  • Gregory Davis, Chief Investment Officer, Vanguard
  • Hanneke Smits, CEO, BNY Mellon Investment Management
  • Pascal Blanque, Chief Investment Officer, Amundi
  • Desiree Fixler, Group Chief Sustainability Officer, DWS
  • Joe Lubin, CEO, Consensys
  • Bahren Shaari, CEO, Bank of Singapore
  • Mark Machin, CEO, Canada Pension Plan Investment Board

The agenda released by Reuters Events Investment is both ambitious and comprehensive, and will cover four key themes: Market Outlook, Asset Management Strategies, Industry Deep-Dives and the Future of Investment.

View the full agenda here

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Halliburton & Baker Hughes CEO’s join Reuters Events: Energy Transition 2020

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Reuters Events – today announced that CEO’s of two of the world’s leading energy service companies, Halliburton and Baker Hughes, will join the speaker faculties for their flagship Energy Transition Summit.

The event will explore the creation of the future energy ecosystem and offer companies, from across the asset spectrum, a definitive guide to their net-zero strategies. The alignment of the two biggest O&G global service companies, Halliburton and Baker Hughes, represents a significant step in the transition to low-carbon energy

More information on the Europe and North America editions can be found below. Registration for the LIVE stream is free.

Alongside their CEO speaker representation, Halliburton join as Platinum sponsors of the North American edition. Baker Hughes join as gold sponsors for the European edition of the flagship energy transition program.

The Energy Transition team report an industry leading speaker faculty for 2020, including:

  • Lorenzo Simonelli, Chairman & CEO, Baker Hughes
  • Jeff Miller, CEO & President, Jeff Miller
  • Tristan Grimbert, CEO, EDF Renewables
  • John Pettigrew, Chief Executive, National Grid
  • Pratima Rangarajan, CEO, OGCI Climate Investments
  • Alex Schneiter, CEO & President, Lundin Energy
  • Gretchen Watkins, President, Shell Oil Company
  • Calvin Butler Jr., CEO, Exelon Utilities
  • Francis Fannon, Assistant Secretary ERB, S. Department of State
  • David Lawler, Chairman & President, bp America
  • Andreas Schierenbeck, CEO, Uniper

More information on the Europe and North America editions can be found below. Registration for the LIVE stream is free.

Governance & Cooperation – Does the energy transition face a ‘governance deficit’? To understand how the energy transition will develop over the next decade, it is crucial to understand the driving governing forces behind it. Will the Green Deal provide the first domino, how can we ensure progress in the shadow of Aberdeen and ensure that we translate targets into action?

Financing Energy Transition – We must address the elephant in the room; who is going to pay for it all? An understanding of where the funds are likely to come from is key to staking claim to the infrastructural projects that will redefine the modern world in the 21st century.

New Energy Infrastructure – Low-carbon energy supply and consumption will need a radical overhaul of infrastructure. As well as revamping the old, we’ll need entirely new assets and new systems of energy delivery. It’s an unprecedented opportunity with estimated spending at $70 trillion over the next decade. Knowing which technologies are ready to be scaled first is the key to understanding opportunity

Business Model Innovation – Who will provide leadership through the age of transition and how do we want our future energy system to look? Speed and timing will be crucial if you are to stay on the right side of the transition. Join us in setting business led, evidence based, targets as industry drives towards net-zero

More information on the Europe and North America editions can be found below. Registration for the LIVE stream is free.

At Reuters Events, we’re committed to tackling the Energy Transition head on; to shed light on the defining issue of our time and help energy companies meet a uniquely difficult challenge. That is, to be both an energy company of today, and the energy companies of tomorrow. In a period that will be defined by uncertainty we can, together, lighten the way forward.” – Owen Rolt, Head of Energy Transition, Reuters Events

Contact

Owen Rolt

Head of Energy Transition

Reuters Events

UK: +44 (0) 207 375 7596

E: [email protected]

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