Europe-domiciled energy transition funds attract investor interest
The assets under management (AuM) of Europe-domiciled energy transition funds, which target companies and technology enabling a shift from fossil fuel to renewable energy sources, increased from €4.4bn ($5.2bn) in 2016 to €50.7bn in February 2021, according to latest Morningstar data.
Recently, there has been a surge in demand for Europe-domiciled energy transition said Fabrizio Zumbo, associate director, European asset and wealth management research at Cerulli Associates. Zumbo attributes this increasing demand partly due to strong returns from these products and shift in economics of renewable energy, which has become cost competitive with fossil fuel energy.
These funds have diversified across geographies and a range of specific activities, from energy generation to energy storage and sustainable transport, often focussing on small and mid-caps. Zumbo added, “These trends have made energy transition funds resilient through the COVID-19 crisis. In fact, the coronavirus outbreak may even prove to be a further driver for energy transition, given that many governments’ stated plans for post-pandemic economic recovery have a strong environmental dimension.”
Cerulli Associate’s research also pointed out that public policy and regulation has been one of the biggest factors driving the energy transition trend. The EU’s Sustainable Finance Disclosure Regulations (SFDR), which mandates new environmental disclosure requirements for companies and funds, will also be a key factor. “The targets and the strategies of relatively new Europe-domiciled energy transition and net-zero funds are more specific than earlier generations of sustainable investment, reflecting a step-change in the demands and expectations of consumers and regulators,” said Zumbo.