Investors still “largely downbeat” about renewables, as policy and fossil risks overshadow rewards

Headline policy reform has not translated into improved investment conditions for renewables in Australia, a new survey has found, with almost 75 per cent of asset owners reporting no progress in removing barriers – and 20 per cent saying investment conditions had worsened. 

For its latest State of Net Zero report, the Investor Group on Climate Change (IGCC) surveyed 55 institutional investors who manage a combined $3.5 trillion in assets on behalf of Australians, including some of the nation’s biggest superannuation funds.

A separate report published by Market Forces earlier this week found that Australia’s 30 largest super funds directly contributed $771 million of the $99 billion invested in Australian clean energy projects since 2020, roughly 0.03 per cent of the $2.5 trillion managed by those funds.

The IGCC report, published on Wednesday, provides some insight into why this might be, after its latest survey revealed institutional investors remain “largely downbeat” about conditions in Australia for investing in solar, wind, battery storage and other climate-focused solutions.

The primary barrier, says the IGCC, is a shortage of climate and clean energy investment opportunities with appropriate risk-return profiles, cited by 74 per cent of respondents, the highest level recorded in the survey’s nine-year history.

More than half of all respondents identified policy and regulatory uncertainty as a barrier, a 16-point increase on the figures from 2024, which was the best of the last five years, the report says.

Investors flagged concerns about the durability of policy commitments across political cycles, including at the state level, where a change of government in Queensland has seen that state “moving out of step with other jurisdictions” and changing its own rules of engagement.

Respondents also pointed to the absence of firm phase-out plans for fossil fuels, the lack of “credible” and science-backed emissions reduction targets, and concerns about “implementation challenges” to existing decarbonisation policies.

“In addition,” the report notes, “in times of crisis, the temptation to revert to available fossil fuel sources remains real.”

“Ultimately, the fact that the government’s progress on high-level climate policy has yet to overcome the headwinds to accelerated investment makes implementation-level policies crucial,” the report says.

“Investors are managing copious risks, including global geopolitical conflict and fragmentation, energy market shocks stemming from the conflict in Iran, cost-of-living pressures, and inflation.

“To overcome those factors, the past 18 months of headline policy reforms must now be matched by implementation and concrete programs that will see capital deployed at speed and at scale.”

Source: IGCC

The IGCC points to the federal government’s Capacity Investment Scheme as a case in point, where its strong early momentum in underwriting newsolar, wind and battery storage projects has faltered, with more recent CIS rounds underperforming.

The IGCC says its survey shows a clear majority of investors want broader decarbonisation mechanisms – including a whole-of-economy carbon price. A clear majority also support phasing out fossil fuel subsidies, while just under half want the government to establish a timeline to phase out fossil fuel use.

“The government’s decisions between now and 2030 will shape Australia’s investment environment for years to come,” the report says.

“The current geopolitical and economic environment may create political pressure to reduce climate policy ambition. However, the survey indicates investors want stronger policies, not weaker ones. 

“This reflects a growing recognition that secure, renewable energy systems are the foundation of long-term investment stability. Strong, credible market signals to decarbonise will support an orderly, least-cost transition and reduce long-term investment risk. 

“Inconsistent or retreating policies will do the opposite – increasing investment risk by undermining clarity about the pace and scale of change.”

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