Sovereign wealth funds investments in renewable energies went up from $3 billion in 2022 to $5 billion in 2023, according to a report by consulting firm PwC.
The report, published in collaboration with the International Forum for Sovereign Wealth Funds and the One Planet Sovereign Wealth Fund Network, explored sovereign wealth funds’ growing role in accelerating the green energy transition amid surging global investments in sustainable infrastructure. The report also highlighted how long-term investors are reshaping the investment landscape to address climate-related challenges.
Global private investments in energy transition infrastructure increased from $73 billion in 2010 to $604 billion by 2023, according to the report. Sovereign wealth funds investments in renewable energies went up from $3 billion in 2022 to $5 billion in 2023, while commitments to electric vehicles and battery technologies rose to $2.78 billion from negligible amounts the previous year.
However, the report also highlighted a funding gap. Despite increased activity, sovereign wealth funds and public pension funds accounted for 0.4% of the $729 billion invested globally in energy transition infrastructure in 2023. This shortfall is compounded by an imbalance in the distribution of funds: only $236 billion of the $1.7 trillion invested in 2023 reached emerging markets and developing economies.
The report has revealed that 34.5% of sovereign wealth funds have already evaluated the carbon footprint of their entire portfolios, with another 41.4% actively working toward this goal.
The debut edition of Funds Europe’s Carbon Impact Research Report 2024 sheds light on the key trends shaping decarbonisation projects, carbon footprints, sustainable fund allocations, and the responsible investment strategies adopted by European asset management firms. Download the full report here: https://funds-europe.com/carbon-impact-research-report/
Long term investors are uniquely positioned to leverage the full life cycle of energy transition assets, according to the researchers. Unlike traditional asset managers, sovereign wealth funds can retain assets from early-stage development to operations, minimising risks while maximising returns. By adopting a “trailblazer” approach, these investors can mitigate risks associated with regulatory, country, and market factors, achieving high returns as early movers. This “whole-of-life” approach enables them to efficiently manage assets as they mature from high-risk ventures to stable, revenue-generating projects.
The report also emphasised the untapped potential of blended-finance structures in green energy investments. Blended finance allows sovereign wealth funds to partner with multilateral development banks, development finance institutions, and private investors to fund projects that align financial returns with social and environmental objectives.
By leveraging their state-backed standing and institutional expertise, sovereign wealth funds can catalyse investments in challenging markets, particularly in emerging economies. Additionally, the research found that through strategic collaborations and risk-sharing frameworks, sovereign wealth funds can de-risk projects and drive the adoption of renewable technologies on a global scale.
