Investors head offshore as lack of zero emissions target delays Australian transition

Institutional investors have a ‘rapacious’ appetite for climate friendly investments but are looking offshore for opportunities to invest in the green transition while the Morrison government refuses to adopt a zero emissions target, the AFR Energy Summit has heard.

CEO of the IGCC, Emma Herd, told the AFR Energy summit on Tuesday that investors had a substantial appetite for green investments, and that there was a substantial opportunity to unlock the investment funds needed to drive a transition within Australia to a lower carbon economy.

The Investor Group on Climate Change (IGCC) represents some of Australia’s largest investment manages, including many of Australia’s biggest superannuation funds, with a combined $2 trillion of assets under management.

According to Herd, the group of institutional investors are searching for low emissions investments, particularly those that were aligned with low emissions scenarios, having faced growing pressure from both customers and financial regulators to account for the contribution and impacts of climate change related to their long-term investments.

“The appetite for climate aligned investments is rapacious in the investor community, they want more investments which are which are positively climate aligned, and they going to markets where they can find them,” Herd said.

“Investors have the appetite. They go into the markets where they can get it, but they are continuing to face significant challenges finding the right deals without the difficulties of the policy discussion attached to it in Australia.”

Herd said that investors were finding it challenging to make large investments in the Australian energy market, as ongoing policy uncertainty and a lack of concrete market signals being provided by the federal government had often led to Australian superannuation firms looking overseas for low carbon investments.

“At the moment, we still have a very combative and jumbled up policy discussion around a lot of these issues, which means that we are not currently in a position to best capitalize on all of the opportunities set out in the [Low Emissions Technology Statement] and the national Technology Roadmap,” Herd added.

CEO of the Clean Energy Finance Corporation (CEFC), Ian Learmonth, told the summit that the CEFC had worked to create green investment opportunities for institutional investors, but acknowledged that the smaller scale of investments available in Australia had been a challenge.

“It is a challenge, trying to get large scale institutional investors into the clean energy sector,” Learmonth said. “Large industry funds, for example, they want to do big deals. They are multi-billion dollar funds and many of the wind and solar projects and battery storage projects have been smaller scale projects of $100-$200 million, not many billion. So, I think that has been one of the issues.”

Herd added that investors would benefit from the clear market signal that could be provided by the Morrison government following the lead from other countries and adopting a formal zero emissions target by 2050.

“All of the Australian states have a commitment to net zero. More than 70 per cent of Australia’s top trading partners now have commitments to net zero, including with the election of Joe Biden, the US has looked to adopt that position,” Herd said.

“In the context of the Australian discussion, there is an increasing realisation that is the direction that we are travelling in. So why not commit to it?”

“Why not actually plan for it? Why not actually have a structured and an orderly transition towards it, that would actually make what we know will be challenging anyway, that bit easier, both for industry and for the community as well?” Herd added.

The message from the investor group mirrors a parting shot delivered by outgoing CEO of the Australian Energy Market Operator, Audrey Zibelman, who told an earlier session of the AFR energy summit that Australian policymakers couldn’t afford to continue to “whinge to each other” about failures to reach a bipartisan position on climate and energy policy.