Energy shocks spark asset owner interest in renewable energy
Stock market volatility caused by instability in the global energy supply after the closure of the Strait of Hormuz has led some asset owners to view renewable energy as a more stable asset less prone to geopolitical risk (Reuters/Stringer)
The strait of Hormuz has been closed for about three months now. This has been disruptive to both the global energy supply and the stock market, with significant bouts of market volatility as Brent crude oil prices climbed as high as $118 a barrel.
As this geopolitical conflict has rocked the economy some asset owners have started to question the long-term stability of traditional forms of energy, like oil, as an asset class.
In particular many family offices have expressed stronger demand for alternative energy assets, Régine Clément, chief executive of the Clean, Renewable and Environmental Opportunities Syndicate, said.
CREO, a sustainability-focused non-profit, works with around 200 family offices, mostly in the US, who make commitments of $500,000 to $350mn across all asset classes and sectors.
“We don't see this only as an energy shock or an oil shock. We see this as a supply chain shock. It is not only about the transportation and access to oil and gas, but also a lot of various commodities that fit across all kinds of products,” Clément said.
Many family offices are especially paying attention to how long-term energy instability may affect regions which are net importers of energy and disproportionately affected by high oil prices.
“We hope that this might be a signal for change in terms of behavior and really accelerating because we feel that energy security is becoming more and more energy dependent and renewable energy,” Clément said.
Clément believes family offices play a “unique role” among asset owners as they are able to de-risk early-stage technologies and climate solutions as well as managers building new climate-related financial instruments and strategies.
But family offices aren’t the only ones interested. Future Fund, Australia’s $244bn sovereign wealth fund, takes an approach to risk which has led it to consider renewable energy infrastructure assets as a source of long-term diversification, said chief executive Raphael Arndt.
“Even if [the Strait] does re-open tomorrow, I think there's a whole lot of countries in the Gulf that want to build resilience into their markets and supply chains and that will take a whole lot of capital that is focused and take it away from something else.
“There's a whole lot of other countries that really depend on oil, gas and other products. Japan, China, Australia, they're gonna build out supply chains, they are gonna build storage, they are going to build out other types of energy, they might not necessarily do one,” he said.
Majid Al Suwaidi, chief executive of Alterra, a UAE sovereign wealth fund-backed investment fund which invests heavily in domestic oil and gas as a producer, said growing energy demands exacerbated by the large number of data centres powering the AI revolution make investments in renewable energy more compelling in the long-term, notably within its international investments sleeve.
“The developing world is growing and a big part of our mandate is to mobilize investment to the global south. Populations in these regions are improving, shifting economically and the energy demand that's going to create is simply an economic opportunity that we would all be remiss to miss out,” he said.
Clément noted that interest in renewables has fluctuated, pointing out the surge of interest following the Biden administration’s passage of the Inflation Reduction Act in the US, which guaranteed renewable energy subsidies for 10 years.
But following the law’s dismantling after the passage of the One Big Beautiful Bill, the syndicate saw shifts more towards geothermal and advanced nuclear energy.
While energy shocks may have changed investor appetite for renewables, overall investment strategies have not changed much due to the size of existing exposures to traditional energy sources.
“They're kind of waiting to see before making any changes,” Clément said.
Arndt speculated that as governments borrow money to invest in things like the AI revolution, price will be a differentiating factor when choosing between investments in renewables and traditional energy as the forms of capital needed to fund decarbonization become more expensive.
“One thing I have really high conviction in all those things is inflation. All those things suck capital from the system, all of those things will lead to higher interest rates. And so we're building out inflation protection and we're just diversifying as many things as we can through the portfolio,” he said.