The world’s biggest sovereign wealth funds (SWFs) are yet to show a proper commitment to ESG as their investments in Renewable Energy are still “inadequate and minuscule” according to the latest report by Global SWF.
The financial boutique focused on State-Owned Investors, including Sovereign Wealth Funds (SWFs) and Public Pension Funds (PPFs), calculates that today SWFs have invested in renewable energy US$ 35.3 billion in 105 deals while PPFs have deployed US$ 40.6 billion in 94 transactions.
There are 153 SWFs and quasi-SWFs that manage US$ 10.3 trillion in assets and only a 21% of the SWFs (33) formally incorporate climate change and other ESG factors in their Risk Management framework, Global SWF has found. Meanwhile, just 12 SWFs have signed the UN Principles for Responsible Investment (PRI), which include incorporation of ESG into decision-making and policies, disclosure of ESG issues, and progress reports. In the same fashion, there is no enforcement, reporting or assessment process for PRI signatories, many of whom have not yet fully integrated ESG into their decision-making process.
However, the pace has been accelerating remarkably in the past seven years, with US$15 billion deployed so far in 2021, and the report says these figures are expected to increase significantly in the near future as funds commit to ambitious green goals.
In terms of regions, North America and Northern Europe continue to be the most popular destinations, thanks to a high level of opportunity and a positive regulatory environment, as well as the efforts of certain countries, such as the UK, around FDI. However, the New York-based institutional investment research firm expects the renewable energy industry to pick up in growth markets too, as SWFs push the domestic agenda.
The largest state-owned investor in renewables among the state-owned investment funds studied, is Abu Dhabi’s Mubadala. The fund, United Arab Emirates’ SWF has invested US$20.2 billion in renewable energy (private markets) and most investments are done via its subsidiary Masdar, which seeks to double renewable capacity within 2-3 years.
The second-largest investors in renewables is the Canadian Pension Plan, with US$7.3 billion invested. The third-largest investors is also a Canadian fund, the Caisse de Depot et Placement of Quebec (CDPQ) with US$6.3 billion.
Global SWF’s report coincided with this month’s COP26 meeting. On that ocassion, the report also revealed that state investors announced grand plans to tackle climate change: The Netherlands’ biggest pension fund ABP pledged to divest US$ 14.7 bn in fossil fuels; New Zealand’s NZ Super joined the PAII-convened Net Zero Commitment; Gabone’s FGIS, Greece’s HCAP, Nigeria’s NSIA and Egypt’s TSFE joined the One Planet SWF Group; ADQ, Abu Dhabis third-largest sovereign wealth fund after ADIA and Mubadala set up its first ESG policy and Kuwait’s KIA will invest in Saudi green assets.
Although it is widely acknowledged that there is more work to do on standardization in the measurement of climate impacts by SWFs, the push continues in the right direction, Global SWF concludes.