Brexit sees attractiveness of UK for renewable energy investment tumble

21 November 2018

The persistent uncertainty caused by the Brexit process has blighted many industries throughout 2018. With the deadline for negotiations with Brussels fast approaching, the UK’s renewable energy scene has seen its favourability slide among investors, who are especially apprehensive about the UK Government’s backing away from solar power.

In 2017, strong demand across multiple sectors fuelled another year of solid expansion among the UK’s environmental consulting market. However, beyond market leaders, the industry also saw a severe slowdown in the growth of the sector, exacerbated by Brexit worries and Government policies changing as a result of the UK’s withdrawal from the EU. This reflected uncertainty around the future of the renewables segment in the UK energy market in particular.

Transactions in the power utilities sector have rapidly been shifting toward renewables in recent years. This is thanks to both the improving efficiency and level of power generation renewable technology has attained, and the negative externalities of non-renewables, which are heavily linked to climate change. Despite this, following the 2015 General Election, which saw the Conservative Party win a surprise majority in the House of Commons, cuts to the solar sector were announced, sending the attractiveness of the UK to renewable investors tumbling. 

According to Big Four firm EY, which tracks investor sentiment via its Renewable Energy Country Attractiveness Index (RECAI), that policy had a dramatic impact on the UK’s standing in terms of attractiveness. With the standing of the UK having already been in decline, the treatment of the solar sector by the Government, which lost its outright majority in an election two years later, sent the country tumbling outside of the top ten of EY’s index for the first time. The UK then fell further to a new low – 13th – in  2016, after what EY described as further “antagonistic” treatment of renewables.

The 10 most attractive countries for renewable investors (and previous rank)

Considering the Government is still looking to persuade the nation’s residents that the economy will survive the potential shock of Brexit on the strength of the UK’s reputation for innovation, the current tact regarding renewables is continuing to bemuse investors deep into 2018. Having recently enjoyed a climb back up the rankings, looming Brexit uncertainty has sent the UK spiralling downward once more. The latest edition of EY’s table, which charts 40 countries’ attractiveness as a destination for renewables investment, now places the UK eighth, falling one rung from its previous seventh position.

EY’s researchers believe this slide can be attributed to the possibility that many in the power sector considering that a No Deal Brexit could impact electricity exports and the cost of technology imports. With the country’s on-going Brexit negotiations seemingly at an impasse once more, just months from the March 2019 deadline for secession, a scenario in which the UK leaves the bloc without an agreement in place looks increasingly likely, as beleaguered Prime Minister Theresa May does not only face a backbench rebellion on her proposed deal in Parliament, but the hard-line DUP – which has propped her premiership up since her poor 2017 election campaign – also looks set to vote against it.

At the same time, investors are also concerned that the UK’s moving away from the EU and its numerous environmental conventions will further prompt a shift away from investment in renewables, and a return to less environmentally friendly power sources. To that end, EY also pointed to Chancellor Philip Hammond’s recent Budget, arguing that it included “few positives” for the industry and provided little in the way of encouragement for renewables.

The impact of government policy on investment attractiveness is reflected by EY’s individual technology scores. The total score a nation is attributed is made up out of a number of renewable technology scores. These are Onshore wind; Offshore wind; Solar PV; Solar CSP; Biomass; Geothermal; Hydro; and Marine. Each country is marked per technology, and while the UK does well in other areas, it scores just 41 points overall. The UK’s solar PV score is lower than all but one other nation – Denmark – in EY’s top 20 ranked nations. Indeed, the UK is ranked 35th out of the 40 nations included within EY’s RECAI, with just the aforementioned Denmark, Belgium, Ireland, Poland and Sweden scoring lower than the UK.



Private equity firms ramp up sustainability focus

19 April 2019

In line with business leaders across the industrial gamut, private equity firms are increasingly on board with sustainability projects. According to a new study, the investment arms for major funds are implementing a number of strategies aimed at supporting sustainable economic development in line with global goals.

While the business world has finally begun to acknowledge the danger of climate change, effective action plans remain difficult to achieve. The Paris Agreement has stipulated a clear target for the decades leading up to 2100, although massively reducing emissions while not crashing the economy could be a tall order.

Businesses that are able to acquire capital can use it to boost productivity and output, thereby creating a virtuous cycle of development. However, some businesses are better able to utilise resources than others, both in terms of their relative productivity, as well as the value of the respective outcomes relative to costs (including environmental harms). Financing can therefore provide an avenue to select businesses that are aligned with various global sustainability goals, while shunning those that drive little or unsustainable social value creation.

Top moves made by investment arms towards responsible investment

Profit has for the longest time been the central criterion for investment decisions. Yet profit at any cost is increasingly seen as creating considerable social harms, while often delivering only marginal value. As a result, the private equity sector, which was initially sluggish to change its ways with regards to sustainability, has started to see the topic as an opportunity as much as a challenge.

A new study from PwC has explored how far sustainability goals have become part of the wider investment strategy for private equity (PE) firms. The report is based on analysis of a survey of 162 firms and includes responses from 145 general partners and 38 limited partners.

Maturing sustainability

Top-line results show that responsible investment has become an issue for 91% of respondents. For 81% of respondents, ESG (environmental, social, and corporate governance) was a board matter at least once a year, while 60% said that they already have implemented measures to address human rights issues. Two-thirds have identified and prioritised Sustainable Development goals that are relevant to their investment segments.

Change in concern and action on climate-related topics over time

While there is increasing concern around key issues, from human rights protections to environmental and biodiversity protection, the study finds there are mismatches between concern and action. For instance, concern among investment vehicles around climate change has increased since 2016.

In terms of risks to the PE firm itself, concern has increased from 46% of respondents in 2016 to 58% in the latest survey. However, the number who have taken action remains far below those concerned, at 9% in 2016 and 20% in 2019. Given the relatively broader scope of investment opportunities, portfolio companies face higher risks – and more concern – from PE professionals, at 83% in the latest survey. However, action is less than half of those concerned, at 31%.

Changing climate

In terms of the climate footprint of the portfolio companies, 77% of respondents state concern in the latest survey. 28% of respondents are taking action through the implementation of measures to mitigate their concerns.

Concern and action taken on ESG issues

In terms of the more pressing issues for emerging responsible investment or ESG issues, governance concern of portfolio companies comes in at number one (92% of respondents), while 60% have taken action on it. Firms have focused on improving awareness – setting up policies and a range of training modules for their professionals around responsible investment decision making. Cybersecurity takes the number two spot, with 89% concerned and 41% implementing strategies to mitigate risks.

Climate risks take the number three spot in terms of concern for portfolio companies (83%), but falls behind in terms of action (31%). Health and safety track records are a key concern at 80% of businesses, with 49% implementing action. Gender imbalance within PE firms themselves ranks at 78%, which is being dealt with by 31%. A recent survey from Oliver Wyman showed that there is gender balance at 13% of GP teams in developed countries.

Biodiversity is also an increasingly pertinent topic, with risks from pollution and chemical use increasingly driving wider systematic risks around environmental outcomes. It featured at number eight on the ranking of most likely global risks for the coming decade, with its impact at number six. As it stands, biodiversity is noted as an issue at 57% of firms, with 15% implementing action.