European institutional investors in renewable energy are driven by performance rather than SRI-related factors, according to Aquila Capital.
Research by the Hamburg-based asset manager found that 63% of respondents to it survey of reasons for investing said portfolio returns were the main rationale behind investing in renewables.
Aquila surveyed 64 institutional investors across Europe last month.
Just 6% invest for environmental and ethical reasons.
Diversification and inflation-hedging, respectively, accounted for 12% and 9% of investors’ reasons.
More than half of European institutions currently have exposure to renewable infrastructure, Aquila said, with an average of 4% allocated to the asset class.
The figure could rise, with 69% of investors expecting an increase in exposure to renewable infrastructure over the next three years.
Aquila said 14% believe the increase will be ‘significant’.
Roman Rosslenbroich, chief executive at Aquila, said the company saw increased demand for renewable infrastructure from institutional investors.
“Diversification sits at the centre of most successful portfolios, so investors should aim to spread their allocation across different asset types, regulatory frameworks and electricity price structure,” Rosslenbroich said.
“Doing so can be a complex task, as many factors need to be considered to ensure investors have a combination of projects delivering attractive, risk-adjusted, long-term returns.”
The renewable sector, he added, was “rapidly evolving” and exposed to political and regulatory pressures.
More than two-thirds of investors are positive about the outlook for investment in renewable infrastructure, with 14% ‘very positive’ and the same amount ‘somewhat’ negative, the survey found.
Direct ownership and specialised funds are the favoured form of vehicle to invest in renewable infrastructure (29%), followed by closed-end funds (24%), club deals/co-investments (9%) and managed accounts (3%).
Institutional investors that have invested in renewable infrastructure in the last three years said photovoltaics delivered the best results, with 39% saying the subsector met or exceeded expectations, followed by 33% for wind power and 30% for both hydropower and biogas.
Aquila said wind power was set to lead renewables in generating increasing interest over the next three years, with 64% of institutional investors expecting to ramp up exposure to the subsector.