One year on from the outbreak of the Covid-19 pandemic, it is clear the world we live in today is a materially different one. While the pandemic has brought huge challenges, it has also prompted a seismic shift in the clean energy space, buoyed by a growing focus on the importance of preserving the environment we live in.
We’ve seen demand for sustainable energy increasing dramatically during the crisis, proving renewables’ role as a resilient source of power through the pandemic. The tide is turning, as more begin to engage with what the journey towards “net zero” looks like.
Octopus Renewables has been a driving force in this transition, which has seen our team grow to more than 80 renewable energy specialists over the last decade, investing more than £3 billion into solar and wind farms in the UK, Finland, Sweden, France and Australia.
Nest partners up with Octopus Renewables
Taking stock of this progress, I am delighted to announce a landmark moment for the business. Octopus Renewables has been selected as a partner by Nest, the institutional investor that manages pensions for nearly a third of the UK’s workforce.
This announcement comes as Nest looks to ramp up investment in renewable-energy infrastructure and, in time, become a net-zero-carbon investor. This year, we’ll help Nest commit around £250 million to renewables projects in the UK and Europe. By the end of the decade, that commitment could stretch much further.
It’s great news – and not only for Octopus. Of course, we’re delighted to be the partner of choice for Nest, which manages some £16 billion in UK pension savings. We believe that Nest’s choice reflects our commitment to renewables investing. Over the last decade, we’ve become UK’s largest independent owner of solar and onshore wind assets and Europe’s largest investor in solar power. So we view Nest’s decision as a major endorsement of our efforts.
But beyond this recognition, we see our partnership with Nest as a significant milestone in the journey to a brighter future. It points to a shift in institutional attitudes to investment in renewables, who are acknowledging both their power to combat climate change and their potential for generating predictable long-term returns. It’s our hope that our partnership encourages other major pension schemes to make similar shifts towards sustainability – at a time when the pressure to take action is growing.
The impetus for impact
That pressure is coming from investment committees and ordinary pension savers alike. According to a YouGov poll in July 2020, some 65% of pensions savers want their money to be invested to help tackle the climate crisis. People want to ensure that their investments are having a positive impact not only on their retirement prospects but also on the planet.
Happily, those two goals are very much aligned. In today’s world of compressed bond yields and extended equity valuations, investors want predictable income streams and appropriate diversification in their portfolios. Those attributes can be provided by real assets – and by renewable infrastructure in particular.
By contrast, renewable infrastructure is set to boom. This comes as many of the challenges associated with its technologies are resolved, as the cost of wind and solar power shrinks, and as more countries commit to stringent emissions targets. So, while the prospects of other real assets appear uncertain, those of renewables have never been brighter.
Signs of a shift
What’s particularly exciting about our partnership with Nest is that it reflects a broader underlying trend – that of a major development in responsible investing – a shift away from mere divestment and towards genuine impact.
Many institutional investors have, until recently, only engaged with the issues of sustainability and responsibility through the divestment of environmentally harmful assets, such as shares in fossil-fuel producers. But there’s a growing recognition that investors can do much more by actively funding projects that work towards a cleaner, greener future.
This shift is still in its infancy. Our research shows that most institutional investors continue to favour divestment from fossil fuels over investment in renewables.[1] But momentum is building, as more investors realise that renewable assets offer financial resilience and sustainable earnings streams in an age of uncertainty. It is indeed, these institutional investors that have a critical role to play in meeting the objectives of the Paris Agreement.
We see our new partnership as a sign of these changing times. As Mark Fawcett, Nest’s chief investment officer, says, there’s a real opportunity here to deliver bigger pensions in a better world.
Unlocking potential
As specialist investors in renewables, we at Octopus aim to unlock the potential of the sector by helping investors access the opportunities that best fit their mandates. That’s precisely what we’ll be doing for Nest and its millions of investors.
Considering our experience in the sector, we believe we know where the best opportunities lie, but of course investing in the development, construction and operation of renewable energy sites is not without risk, and investors must be comfortable they may not get back the full amount they invest. This is a crucial aspect of investing in renewables – and one where it pays to have an established team that can assess and look to mitigate risks at every stage of a project.
For Nest, we’ll be covering a diverse range of assets, regions and technologies across all three stages of the renewable lifecycle. And we’ll also be looking for growth opportunities in the wider energy transition.
Grounds for optimism
When contemplating the challenges posed by climate change, it’s easy to be pessimistic. Most of us are worried about its impact on our lives. But at Octopus, we think that there are plenty of grounds for optimism.
Government and corporate backing for renewables is coming thick and fast – as with the recent commitments to net-zero targets by China, the US and a whole host of multinationals. This isn’t about subsidies – a model already past its peak in the developed world – but about the opportunity presented by long-term sustainability targets and by renewables proving that they can compete on cost as well as cleanliness.
Meanwhile, public awareness of climate change is leading to demand for action at all levels. The nascent shift among institutional investors is one aspect of this – and our partnership with Nest exemplifies the trend.
As pioneers in renewables investment, we’re heartened by these developments. We worked to build up our market-leading capabilities in renewables because we were confident that they were the future. It’s taken time, but the wider investment community is starting to realise that investment in renewables is not only rewarding but essential.
The journey continues
This new partnership is a big step forward – for Octopus Renewables, for Nest and for all of us who care about helping the world cope with the climate crisis. Renewable energy is key to saving our planet, so we’re keen to engage in many more partnerships of this kind. We’d like to invite any investors who want to join us on this exciting journey to get in touch.
Personal opinions may change and should not be seen as advice or a recommendation. We do not offer investment or tax advice. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London, EC1N 2HT. Registered in England and Wales No. 03942880. Issued: March 2021.
[1] https://institutional.octopusinvestments.com/wp-content/uploads/sites/22/2020/01/OG082-Renewable-Energy-Thought-leadership-booklet-FINAL-14.10.pdf
