UNLISTED PROPERTY FUNDS: SUPPLYING CAPITAL TO DEVELOPING PROPERTY
EuropE : PROMISING TRENDS IN UNLISTED GREEN FUNDS · Europe : promising trends in unlisted green...
Transcript of EuropE : PROMISING TRENDS IN UNLISTED GREEN FUNDS · Europe : promising trends in unlisted green...
EuropE :PROMISING TRENDS
IN UNLISTEDGREEN FUNDSThE GREEN FUND MaRkET IN
INFRaSTRUcTURE, PRIvaTE EqUITy, PRIvaTE DEbT, REaL ESTaTE
aND FOREST
MaRch2019
with the support of
2 Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME
kEy POINTS ....................................................................................................................................... p 4
ThE EUROPEaN UNLISTED GREEN FUNDS ................................................................ p 6
Are green unlisted funds meeting financing needs?.............................................................. p 8
Main trends from unlisted green funds ...................................................................................... p9Fund classification and definition of the study panel ................................................................................... p9Main characteristics of the unlisted green funds market ..........................................................................p10Data comparison of green funds for listed assets and unlisted assets .....................................................p13
Conclusion ............................................................................................................................................. p14
DETaILED aNaLySISThE ENvIRONMENTaL qUaLITIES OF GREEN FUNDS ...................................................................p15Large European public investors are the top clients .................................................................................p15Investment themes dominated by renewable energy ................................................................................p15Unlisted green funds more or less diversified according to country .........................................................p16In France, the TEEC label guarantees environmental quality ......................................................................p16Emerging demand for greater transparency and impact measurement ....................................................p18Analysis by sector and green asset technology .........................................................................................p19Focus: emerging technologies and themes ...............................................................................................p23Investor demand is becoming clearer .......................................................................................................p23
DaTa cOLLEcTION METhODOLOGy ...............................................................................p25
SUMMaRy
Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME 3
T heEuropeanUnionhasassigneditselfambitiousenergyandclimateobjectives and an action plan for sustainable finance. However,there are very few figures on financial products that target both
objectives.Forthisreason,Novethic,withthesupportofADEME,hasevaluated in 2017 the listed green funds market in Europe beforeanalysingtheunlistedgreenfundsmarket,inthisstudy.
This work is all themore useful given that an increasing number ofinstitutional investors are looking to diversify their investments inunlisted funds like infrastructure and real estate. Some of them areinterested in green funds, and more specifically, in the renewableenergyandenergyefficiencysectors.
Identifyingandqualifyingtheenvironmentalnatureofthesefundsisachallengebecausethereareveryfewavailabledatabasesandtargetedfundspublishverylittlereporting,withthelegaldocumentandfinancialinformationbeingmostoftenreservedforinvestors.
Theobjectiveofthisstudyistoevaluatetheamountsinvestedinunlistedgreenassetsacrossvariousfunds,whethertheyclearlydisplayagreenpositionornot,thusallowingustoevaluatethecharacteristicsandtheopportunities related to thismodeof greenfinancing. In France, theTEEC(“EnergyandEcologicalTransitionfortheClimate”)label,auditedbyNovethic,guaranteestheenvironmentalqualityoffunds,andtoday,unlistedfinancialproductscomprisemorethanhalfofthefundswithaTEEClabel.
ackNOWLEDGEMENTSNovethicthanksADEMEforitssupportandconstructivefeedbackaswellasalltheprofessionalsthatagreedtosharetheirtimeandknowledgeontheunlistedassetsmarket.
ADEME : GuilainCals-EconomistfortheEconomyandProspectiveService PatrickJolivet-HeadoftheEconomyandProspectiveService
France : PhilippeGarrelandMariannedesRoseaux(Acofi),OliviaYedikardachian(CaissedesDépôts),IsabelleCombarelandRenaudSerre(SWENCapitalPartners), SergeSavasta(OmnesCapital),CédricLacaze(RGreen),BenjaminPaternot(BPIFrance).
Royaume-Uni : IanBerry(AvivaInvestors),JoostBergsmaandAlfredPerry(GlennmontPartners), NicholasBurlington(ImpaxAssetManagement).
Pays-Bas : JosienPiek,SanderPaulVonTangerenandRickWalters(GRESB),ElsAnkum-GriffioenetDaanvanderWerf(TriodosIM).
Luxembourg : AurélienRoelens(CubeInfrastructureManagers).
Finlande : VesaSyrjäläinen(VARMAMutualPensionInsuranceCompany).
Danemark : ErikEliasson(DanskeBankWealthManagement).
4 Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME
TOP 10 asset management companies (in €M)
TOP 3 of most committed countries
Source:Novethic
Source:Novethic
Source:Novethic
Macquarie Infrastructure and Real Assets
BlackRock
Copenhagen Infrastructure Partners (CIP)
First State Investments
PERIAL Asset Management
Greencoat Capital
Cube Infrastructure Managers
NextEnergy Capital
InfraRed Capital Partners
Marguerite Adviser
TOTAL
4 0003 4023 1862 1001 9731 9601 8301 4741 4411 410
22 776
UNITED
kINGDOM
82funds
€ 25,8bn
FRaNcE
54funds
€ 9bn
GERMaNy
22funds
€ 3,5bn
2
1
3
UNLISTED GREEN FUNDS IN EUROPE
223 funds
57,6 bn assets
6,5%of European unlisted assets
kEy POINTS
Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME 5
Thestudyidentifies223 environmental fundsinEuropethattotal€57.6 billion in unlisted green assets.Thesevariousfunds(infrastructure,investmentcapital,realestate, forests…)havebeenquantifiedforthefirsttimethroughthe lensofboth environment and Europe. Most funds are fairly recent and testify to theinfluenceandmomentuminitiatedbytheParisAgreement.Subsequently,apeakof€12billioninfundraisingacross35fundswasrecordedin2016.
Green funds represent less than 10% of unlisted European fundsbuttheirshare remainsmore important than thatof listedgreen funds (less than1%ofEuropeanfunds).Raisingonaverage€5billionperyear,unlistedEuropeangreenfundsmeetasmallfractionoftheadditionalinvestmentneedsfortheenergyandecological transition.TheEuropeanCommissionestimatestheseneedsatmorethan€180billionperyearby2030.
Funds focused on renewable energy take the lion’s sharewithmorethan€26 billion in invested assets across 122 funds.Thedetailedanalysisofunlistedfundsshowsthatthistypeoffundhasthetendencytobeinvestedbyupto100%inthesespecificgreentechnologies.
�Assets�are�becoming�more�diversified.Ononehand,specialisedfundscanbefoundinemergingtechnologyordomainslikesmartcities,whichareallseekinghigherreturnstoreflecttheriskstakenbyinvestingininnovativeprojects.Ontheotherhand,onecanalsofindfundsofferinglowerreturnsthatputgreateremphasisonrefinancingexistingassets inverymatureproduction,suchasonshorewindfarms.Thissecondcategoryrepresentsmorethanhalfofthestudypanel.
�Despite�growing� interest,�demand� for�unlisted�green�financing� remains�weak on the investor side.Theattractivenessofproductsdedicatedtorenewableenergiesisbasedmoreontheireconomicandfinancialperformance.Subscriberstotheseunlistedfundsarenotverydemandingonthequalityofenvironmental reporting,whetheritisinrelationtoavoidedemissionsorinstalledcapacity.OnlytheEIBhasthesekindsofrequirements,aswellasahandfulofhighlycommittedclimateinvestors.
Country leaders in the management of unlisted green funds are the United Kingdom, remotely followed by France and even further, Germany. Thesecountriesalsoconcentratethemajorityofrenewableenergyandenergyefficiencyprojectsfinanced.ItisnotnecessarilythedominantoperatingmethodinNordiccountries,whichareadvancingrapidlyintheirenergytransition,butratherinthecontextofdirectfinancing.
6 Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME
ThE EUROPEaN UNLISTED GREEN FUNDS
The volume of unlisted funds remainsmodestcomparedtoEuropeanlistedfunds(€11.867billion),butmomentumisgrowing.AccordingtoPreqin,thismarketrepresentsconsolidatedfundraisingof€53billioninthefirst quarter of 2018, i.e. 30% of the totalamountraised in2017(€184billion),whichindicatesanaccelerationintheirattractivity.
1Source:PreqinMarketsinFocus:AlternativeAssetsinEurope,June2018.Capitalinvestmentfundsincludehereprivateequityandprivatedebt.
2Principlesforresponsibleinvestment,launchedbytheUnitedNationsin2006,thatencourageinvestorstointegrateESGdimensionsintoportfoliomanagement
Themarketforunlistedfundsissmallandreservedforinstitutionalinvestors,givenitscharacteristicsmarkedbyriskandilliquidity.AccordingtodatafromPreqin,adatasolutionservicespecialisinginalternativemanagement,theEu-ropeanmarketrepresented€882billionasofDecember31,2017whencombiningallthefunds.Thisincludedthoseinvestedintangibleassetsorsimplyengagedinpendinginvestments.
The growing importance of ESG criteria in unlisted asset managementInitiallydevelopedforlistedmarkets,theanalysisofcompaniesaswellasothertypesofassetsbasedonenviron-mental,socialandgovernance(ESG)criteriaisstartingtogainground.Theriseinclimaterisks,aswellasthethreatsemanatingfromtherejectionofinfrastructureprojectsbylocalcommunities,havefavouredthedevelopmentofanESGanalysisadaptedtounlistedmarkets.
AccordingtofiguresprovidedbythePrinciplesforResponsibleInvestment(PRI)²basedontheannualsurveyofthegroup’s1600signatories,morethan¾oftheinvestmentmanagerscurrentlyactiveinprivateequityorinfrastructurehavereportedadoptingcertainresponsibleinvestmentpractices.
Volume breakdown by asset class1 (in € bn)
10
615
126
131
Capitalinvestmentfunds
Infrastructurefunds
Realestatefunds
“Naturalresources”funds(includingforests)
Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME 7
Proportion of management companies having directly invested in a given asset class and having declared piloted certain responsible investment practices in the relevant asset class
UnlistedfundsareprimarilybasedonanESGanalysisconductedonacase-by-casebasis,directlyseekinginformationfromcompaniesorprojectleaders.Itisthenusedtoencourageimprovedpractices,mostoftenintheformofsidelettersthatsupplementthelegalandfinancialrequirementsoftherelationshipbetweenprojectleaderandinvestor.
Infrastructure funds are going greenAccordingtoaglobalIPERealAssetssurvey3oninfrastructureinvestors,59%considerrenewableenergiesasthebestinvestmentopportunityin2017andin2018.Thisisfollowedbywater(34%).Moreover,theNovethicstudy4 on green investmentbytopFrenchinstitutionalinvestorsconfirmsthistrendinFrance.Whiletheoverallproportionoftheirgreenassetsdoesnotexceed1.07%,itexceeds25%forinfrastructureinvestments.Thispromiseofdevelopment,iscompletedbyanotherpromise,whichisthatofthe€56billionthatwasalreadyraisedbytheendof2017butnotyetinvested.Therefore,thiscouldpossiblybededicatedtogreenassets.
Accordingtoseveralstudies(ADEME20185,Lazardbank6,etc.),themostmaturerenewableenergiesareparticularlyattractiveinvestmentsastheyarecompetitive.Thecostofproducingsolarenergyisdown86%over8yearsand67%forwindenergy.ThisglobalphenomenonisinevitableaccordingtoBloombergNewEnergyFinance,whichestimatesthattheshareofrenewableenergieswillgofrom38%to66%ofthetotalinstalledcapacitybetween2015and2040.
3InstitutionalInfrastructureSurvey20184Source:Novethic,October2018173ShadesofReportingSeason25ADEME,Trajectoriesfortheevolutionofelectricitymixfor2020-2030,December20186Lazard’slevelizedcostofenergyanalysis,2017
Source:PRIBlueprint2017
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ANNUAL INVESTMENT NEEDS FOR SUSTAINABLE DEVELOPMENT IN THE EU (€ BN)
7“RestoringEUcompetitiveness”,2016(fortheperiodextendingfrom2014to2030)
are green unlisted funds meeting financing needs?With€57.6billion,theEuropeangreenfundmarketrepresents6.5%oftotalunlistedfunds.ThisremainsverylittlecomparedtothefinancingneededtoachieveEurope’senergyandecologicaltransition.
TheobjectivesoftheEuropeanUnionwilldevelopnewmarkets.
By2030,itseeks:
Toreducegreenhouseemissionsby40%(vs.1990)
Tosettheshareofrenewableenergiestoatleast32%ofEUenergyconsumption
Toincreaseenergyefficiencybyatleast30%
Toreduceitscountries’dependenceonfossilfuelsandenergyimports
AccordingtoEIBdata7,theannualfinancingneedsevaluatedtoachievetheseobjectivesarecloseto€300billionforthetransport,watertreatment,wasteandenergysectorsalone.
Tooperateatlevel,itisnecessarytocombinecontributionsfrompublicbanksandprivatefinancing.Fundsdedicatedtoenergytransitionoftenbenefitfromthistypeofco-investmentbut,asitstandscurrently,theamountsmobilisedbyunlistedgreenfunds,muchlikelistedfunds,donotmeettheseneeds.TheintroductionofaEuropeanclassificationsystemandnewtoolssuchasanEcolabelshouldfacilitatethisdevelopment.
TRANSPORT
WATER&WASTE
ENERGY
80 80
48 90
130 100
Current Required
Source:EuropeanCommissionActionPlan-FinancingSustainableGrowth,March2018
Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME 9
Main trends from unlisted green fundsTobuildadatabaseof223unlistedgreenfundsonaEuropeanscale,theNovethicteamcarriedoutimportantdatacollectionandanalysisworkinconjunctionwithapproximatelyfifteeninterviewswithvariousprofessionalsfromtheunlistedsphere(assetmanagers,publicandprivateinstitutionalinvestors).
Themaindifficultyoftheexercisewaslinkedtothescarcityofpublicinformationanditslackofhomogeneity.
Fund classification and definition of the study panel These223fundsarethoseforwhichthenumberoffinancedgreenassets(projectsorcompanies)totalsatleast50%ofassets.Theseinclude:
203fundsclearlyshowingtheirenvironmentalpositioningininvestmentwordingorstrategy
20fundsforwhichmorethanhalfoffinancedassetsaregreen,withnospecificmentionintheirwordingand/orpublicdocumentation.
Inordertojudgethe«green»qualityofanasset,Novethicreliedontheclassificationcreatedforlistedfunds,basedon five green investment “themes”.
These«themes»correspondtotheprimarydirectionofthefunds’investmentstrategy.Inmoredetail,theyincludeoneormoregreen«sectors».ThethematicbreakdownmadebyNovethicqualifiesthesefunds(seepage19):
Renewable energy: this is a simple theme, since it concerns only the renewable energy sector, alltechnologiescombined.
Climate/Energy transition:thisthemebringstogethertherenewableenergysectoraswellastheenergyefficiency,greenbuilding,transportandcarboncaptureandstorage(stillatanearlystage)sectors.
Water:thewaterthemeherecorrespondstothewatertreatmentsector.
Environment:thisthemecoversthesectorsofpreviouslymentionedthemesaswellasthesustainableagriculture,forestry,wasteandpollutioncontrol,andsoilrehabilitationsectors.
Sustainable:thisthemeisthebroadest.Thefundsclassifiedinthisthemeinvestinoneormoregreensectorsmentionedaboveaswellasinsectorswithaclearlymarkedsocialdimension(forexample,health,education,etc.).
SustainableEnvironmentClimate/Energy Transition
Renewableenergy Water
Source:Novethic
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THE PRONOUNCED FOCUS OF GREEN FUNDS
Novethicalsosoughttoassessthegreenintensityoffunds.Thus,ofthe223greenfunds:
159fundscanbedescribedas full green inthesensethat100%oftheassetstheyholdaregreen. Itcanbeobservedthatunlistedfundshaveanaveragegreenallocationthatismuchmorestringentthanthatoflistedfunds.Forexample,ofthe159unlistedfullgreenfunds,117investexclusivelyintherenewableenergysector.
25fundscanbecharacterisedashavingagreen focus: theproportionofgreeninvestments(innumberoflines)isbetween50%and99%oftheassetportfolio. Itshouldbenotedthatonlysixfundsinthiscategoryarelistedasgreeninthewordingoftheirnameorintheirinvestmentstrategy(includingtwoTEEC-labelledfunds):UBSCleanEnergyInfrastructureSwitzerland,ASNGroenprojectenfonds,FCPIEcotechnologies,CityofTomorrow,SCORInfrastructureLoansIII(TEEClabel),andBRIDGEIVSeniorEnergyTransition(TEEClabel).
39fundscouldnotqualifyunderagreennesscriterionsincetheyhavenotyetstartedinvesting(6funds)ortoolittleinformationisavailableontheassetsheldintheportfolio.
Main characteristics of the unlisted green funds market
The renewable energy theme dominates the panel as itrepresentshalfofthefundsandassetsundermanagement(AuMs)(€27billion).Thisisareversetrendtothatoflistedfunds where the share of renewable energies is muchlowerthanthatofwaterandenvironmentfunds.Logically,these last two themesare the least represented for theunlistedfundspanel,withatotalamountof1%and13%respectively.
The studyalsomakes it possible todetermine trends inthevarioustechnologiesinvestedintherenewableenergysector,butalsoinenergyefficiency,andmorebroadly,intheenvironmentaltheme.
VOLUME BREAkDOWN By THEME
GREEN INTENSITy OF FUNDS
Theme
122
47
23
30
1
223
Renewable energy
Climate/Energy transition
Sustainable
Environment
Water
TOTaL
Numberof funds
Source:Novethic
Source:Novethic
Source:Novethic
Renewableenergy46%
Water1%Environment
13%
Greenfocus12%
Fullgreen73%
Notidentified15%
Sustainable14%
Climate25%
Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME 11
Amongthe25green focusfunds,amajorityoffundshaveashareofgreenprojectscomprisedbetween50%and80%foreachfund(numberofgreeninvestmentscomparedtothetotalnumberofthefund’sinvestments).
INFRASTRUCTURES, PRIVATE EQUITy, … WHICH ASSET CLASSES DOMINATE?
Thepredominanceofinfrastructurefundsisobserved,eventhoughthelinebetweenthemandconventionalprivateequityisnotalwayseasytodecipher.Forexample,fundsmanagedbyCubeInfrastructureManagers,ImpaxAMandOmnesCapitalmixthetwostrategies.Theirgoalisprimarilytobepresentinthecapitalofdevelopersorpromotersbehindgreeninfrastructureprojects.Thisfacilitatestheiraccesstoprojectpoolsandallowsthemtoactivelyparticipateintheorganicgrowthofcompaniesandassistthemintheirdevelopment,particularlyintheirinternalESGbestpractices.
Thereisagreaterdegreeofgreenintensityforfundsinvestinginrealassetssuchasinfrastructure,realestateandforestassets,whosecontributiontotheenergyandecologicaltransitionismuchmoreobviousthanforfundsfinancingunlistedcompanies,lesslikelytoofferverifiableenvironmentalfeatures.Infact,unlistedcompanieswhoseactivitycanbedescribedas100%greenremainrare.Thus,outof159fullgreenfunds,almostall(94%)arerealassetsfunds.
Regardingrealestate,manyassetmanagershighlightenergyperformancemonitor ing for assets andimprovementobjectives.Thus,inFrance,accordingtotheOID(FrenchObservatoryonSustainableRealEstate)Barometer20178,«halfoftherealestatelistedcompanieshavepublictargetstoreduceGHGemissions»,andthese«voluntaryreducedenergyconsumptionobjectiveshavebeenestablishedfor2020asbeingbetween-20%and-40%andbetween-30%and-70%for2030».Thatsaid,therearefewfundswithminimumenvironmentalperformancetargetsforselectedassetsorspecificperformance improvement targets,whichclearlyqualifythemasgreenfunds.Fundsmeetingthistypeofrequirementonlyrepresent4%ofthevolumes.
DISTRIBUTION OF THE NUMBER OF FUNDS ACCORDING TO THEIR PROPORTION OF GREEN PROjECTS
BREAkDOWN By NUMBER OF FUNDS PER ASSET CLASS
Source:Novethic
Source:Novethic
PrivateDebt2%
Infrastructure76%
Forests2%Realestate4%
Infrastructure/PE4%
PrivateEquity12%
8OIDBarometer(ObservatoryofSustainableRealEstate)onthe“EnergyandEnvironmentalPerformanceofCommercialBuildings,”Edition2017
8
1
9
750%-60%
60%-70%
70%-80%
90%-99%
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MARkET EVOLUTION OVER THE PAST 10 yEARS
Ingeneral,thelifecycleofaprivateequityorinfrastructurefundrevolvesaroundseveralkeyperiods:
SubscriptionorFundraising:thefundmayannounceoneormorespecificperiodsduringwhichitispossibletosubscribeintothefund.
Investment:periodduringwhichthemanagementcompanylooksforcompaniesor«target»projectsinwhichtoinvest.Itthencallsforfundsfromlimitedpartners(institutionalinvestors)whocameforwardduringthesubscriptionperiod.
Detention:oncetheinvestmentshavebeenmade,themanagementcompanymonitorsthemforavariableperiodrangingfrom5years(forprivateequityfunds)to12years(forinfrastructurefunds).
Divestment:proposalandexecutionofassetsales.
Thepaceforunlistedfundraisinggeneratessomeyear-to-yearvolatility.However,twostrongtrendsstandout:aminibubblein2008-alsonotedonlistedgreenfunds-andarevivalsince2014(yearlyassetvolumeraisedexceeding€6.6billion).TheadoptionoftheParisAgreementinDecember2015hadarippleeffectin2016,bothintermsofamountsraised(€12billion)andnumberoffundshavingcompletedtheirfinalroundoffundraising(35funds).Sincethen,fundclosingshavecontinuedtoincrease,despiteaslowdownintheamountsraised.
Inall,thesizeofthegreenfundmarketforunlistedassetsreached€57.6billion,nearlytwiceasmuch(1.8precisely)asthetotalAuMforlistedEuropeangreenfunds.
EVOLUTION OF THE NUMBER OF FUNDS AND AMOUNTS RAISED
Amountraisedbynewfunds(€bn)
Amountraisedinpreviousyears(€bn)
Numberoffundshavingclosedfundraisingperyear
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 20183
12
5 48
13 12
1721
35 34
43
3 2 1 23 2
7
6
12
8
8
6 7 9 12 1421
27
3947
Source:Novethic
Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME 13
MAIN ASSET MANAGEMENT COMPANIES HOLDING UNLISTED GREEN FUNDS
Data comparison of green funds for listed assets and unlisted assets
Therankingisdominatedbythemajorplayers in infrastructurefinancing:Macquarie,BlackRockandCopenhagenInfrastructurePartners.TherearefewprivateequitymarketplayerswithgreenorsustainableinvestmentexpertisesuchasDemeter,GlennmontPartners...Today,unlistedprojectsarethereforeverypopular,andthecompetitionispotentiallyfierceforsmallmanagementcompanies,whicharealsofacinglargeindustrialgroupslikeTotalwhocanbuyandabsorbsmallerindustrialprojectpromoters.
Top 10 Asset Manager
Macquarie Infrastructure and Real Assets
BlackRock
Copenhagen Infrastructure Partners (CIP)
First State Investments
PERIAL Asset Management
Greencoat Capital
Cube Infrastructure Managers
NextEnergy Capital
InfraRed Capital Partners
Marguerite Adviser
TOTaL
Number of funds
1
4
3
1
1
4
2
3
2
2
23
Volume of green funds (€M)
4000
3402
3186
2100
1973
1960
1830
1474
1441
1410
22 776
ThEME
Available panel
Renewable energy
Climate/Energy transition
Water
Environment
Sustainable
Number of funds AUM (€ M)*
176***
8
22
18
74
26
340
3 993
11 301
10 590
3 108
UNLISTED GREEN aSSETS
32 250Number of funds AUM (€ M)**
223
122
47
1
30
23
26 715
14 671
478
7 753
7 933
LISTED GREEN aSSETS
57 550
*Lastfiguresfortheamountsraisedreportedon14/12/2018**On31/12/2017***Thelowcarbonthemeiscomprisedof28funds(€2.72bn),thiscategorywasnotconsideredinthepresentstudy
Source:Novethic
Source:Novethic
14 Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME
cONcLUSION
EUROPEAN UNLISTED GREEN FUNDS: A PROMISING NICHE THAT REMAINS INSUFFICIENT
ThestudyconductedbyNovethic,withthesupportofADEME,has identifiedadrive inunlistedgreenfundswhichhavebeengrowingrapidlysince2014.Themarkethasmorethan220fundswithdiversifiedprofiles,beitfortheproposedassetclasses,theinvestedgreentechnologiesorthefinancialprofiles(risk/returnprofileforfunds),totalingnearly€60billion.
ThismarketisaveryusefulsourceofgreenfinancingforEuropeatatimewhenpublicsupportmeasuresforrenewableenergyinEuropearedryingup(reductionofsubsidiesandpurchasetariffs)andthenumberofprivatecontractsforelectricityresaleareincreasing.Thiscontextexacerbatescompetitionforthemostattractiveprojectsanddrivesmanagementcompaniestoincreasinglyinnovate.
However,itisnecessarytoqualifythisinformationbecausethefinancingneedsof a low-carbon economy remain significant. Some experts point out the lackof creativity withinmanagement teams, which does not allow them to definetrulydisruptivesolutionstoaddressthisclimateemergency.Itthereforeseemsessential todevotemoreresourcesandtimetothedevelopmentof intelligentsolutionsandtotheidentificationofprojectsthatarefinanceableandexploitable,combinedwithenvironmentalreportingtoassesstheimpactofsuchfinancing.
Themassivemobilisationoffinancialflowsforthebenefitofthegreeneconomyisyettocome.Ontheonehand,itisnecessarytobetteridentifyprojectsofallkindswithinvariousEuropeancountriesand,ontheotherhand,beabletoevaluatetheirenvironmentalqualities.TheimplementationoftheEuropeanCommission’sSustainableFinanceActionPlanisexpectedtobringnewdevelopmentstothisemergingmarket.Thepublicationofastandardizedclassificationsystemofgreenactivitieswillprobablymakeiteasiertodirectfinancialflowstowardstheenergyand ecological transition. It is also necessary for investors to strengthen theirgreenfinancingstrategiestomakegreenassetsafullcategoryintheirallocationstrategy,andnotjustasimplediversificationnichelabeledas“green”.
Attheinternationallevel,initiativesaremultiplyingtostimulategreenfinancing.Thelatestinitiativewascreatedinmid-January2019.TheClimate Finance Leadership Initiative (CFLI), co-founded by Michael Bloomberg and executives from AXA,HSBC,MacquarieGoldmanSachs,Enel,andthe JapanesesovereignfundGPIF,hassetthegoalofincreasingthevolumeofclimatechange-orientedfundingtoscalerapidlytothelevelofneed,especiallyfundinggearedtowardinfrastructureinemergingcountries.«Themorewecanaccelerateprojectinvestment,themorewecancreate jobsand reduce thehealthandeconomic risksassociatedwithclimatechange,»statedthepressreleasefortheinitiative’slaunch.
Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME 15
DETaILED aNaLySISThe environmental qualities of green funds Large European public investors are the top clientsTheNovethicstudywasabletopointoutthekeyroleofsponsorssuchastheEIB,whichinvestedin40fundsidentifiedinthisstudy,withanaverageholdingof€57millionandalmostaquarteroftheholdingsinunlistedgreeninvestments.InFrance,majorpublicactorsincludingCaissedesDépôtsgroup,BPIFrance,ADEMEandthePensionReserveFund,participatein21ofthesefunds.Ingeneral,58oftheidentifiedfundsincludeparticipationfromoneorseveralpublicEuropeanfinancialinstitutions,suchasKfWGermany,FMOintheNetherlandsandCassadiDepositiinItaly.
Investment themes dominated by renewable energy
RENEWABLE ENERGyThe122fundsunderthethemeofrenewableenergyrepresent,withnearly€27billion,almosthalfoftheamountraisedbyunlistedgreenfunds(47%).Theyareveryhomogeneousintheircomposition:117areclassifiedasfullgreenand2areclassifiedasgreenfocus.
CLIMATE/ENERGy TRANSITIONThe 47 Climate/Energy Transition themed funds total €14.7 billion and represent 1/4 of the total market. Thecharacteristicsofthesefundsaremorevaried.Theproportionofgreenassetsremainsabove50%eveniftheyincludecertainnon-greeninvestments(e.g.roadconcessionsandnaturalgasutilities).AlsoincludedisthePFO2,arealestatefundfromtheFrenchPerialAM.
ENVIRONMENT AND WATERThe31fundsundertheenvironmentorwaterthemesrepresentatotalvolumeof€8.2billion,or14%ofthetotalmarket,whilethisthemelargelydominatestheofferoflistedfunds.ThelargestistheMacquarieEuropeanInfrastructureFund5,whichalonetotals€4billion.Thereisonlyonefunddedicatedtowater:DalmoreInfrastructureInvestment.
SUSTAINABLE23fundscombinegreeninvestmentswithothersocialvalue-addedthemes.Theytotal€7.9billionandallareclassifiedasgreenfocusbecauseofthevarietyofthethemesintheirportfolios.Socialvalueisunderstoodinabroadsensebyfundmanagers.Thus,beyondtraditionalsocialinfrastructuresuchasschools,hospitalsorcourts,certainplayerssuchasCubeInfrastructureManagersorZencapAMclassifyfiberopticfacilities,telecommunications,orevenroadsunderthiscategory.
Average size of funds (€ M)*Amount raised (€ M)*
309
Themes
TOTaL
Renewable energy
Climate/Energy Transition
Water
Environment
Sustainable
Number of funds
223
122
47
23
30
1
259
358
467
323
478
26 715
14 671
7933
7 753
478
57 550*latestreportedamountasof14/12/2018
Source:Novethic
16 Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME
Unlisted green funds more or less diversified according to country
In France, the TEEC label guarantees environmental qualityLaunched at the end of 2015, the Energy and Ecological Transition for the Climate (TEEC) label guarantees thetransparencyandqualityoftheenvironmentalcharacteristicsofthefinancialproductstowhichitisgranted.Assuch,thelabelisofinteresttoinstitutionalinvestorsaspartoftheirgreenfinancingstrategies.
Based on country ofmanagement, the UnitedKingdom (UK) comes out first, even if theinvestmentprojectsarenotnecessarily locatedintheUK.Franceisinsecondpositioninnumberoffunds,withlowerassetvolumes.
British and German funds are mainly focusedon renewable energy infrastructure, but thebreakdownbythemeismorebalancedforFrenchfunds.FrenchfundsareevenlydistributedacrossRenewable Energy, Environment (includingprivateequity fundsmanagedbyDemeterandsoilrehabilitationfundsmanagedbyBrownfieldsGestion), Climate and Sustainable themes. Inaddition,Frenchfundsaccountforthemajorityofgreenprivateequityfunds(9intotal,including4under sustainable theme fundsand2underclimatethemefunds).
ThesignificantpositionofIrelandandDenmarkin the asset class ranking is due to twomajoractors:BlackRock (93%ofAuMs in Ireland)andCIP (97% of AuMs in Denmark). The modestrankingoftheNetherlandsandNordiccountriesislinkedtothefactthatinvestmentsbylargeinstitutionalinvestorsinunlistedgreenassetsaremadedirectlyorviainternationalfunds.Thus,accordingtothelistofthetop100investorsininfrastructurepublishedattheendof2018byIPE,4areDutch,foratotalinfrastructureofapproximately€22billion,and12areNordic,forapproximately€21billion.Inbothcases,itisdifficulttodeterminethepercentageofgreenfundsrepresented.
Number of funds* Average size of funds (€ M)Volumes Managed (€ M)
14 212
Themes
TOTaL
TOTaL 223 57 550
Renewable energy
Climate/Energy Transition
Environment
Sustainable
7
5
1
1
207
241
100
216
1 446
1 207
100
216
2 969*On14/12/2018
Country of management company
25 888
9 008
3 548
1 187
2 287
4 679
1 871
76
1 501
3 652
3 272
583
82
54
22
12
9
9
9
6
5
5
5
5
United KingdomFranceGermanyFinlandNetherlandsLuxembourgSwitzerlandSpainItalyIrelandDenmarkOthers
Number of funds Size of funds(€ M)
Source:Novethic
Source:Novethic
Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME 17
Nineassetmanagementcompanies(eightinFranceandoneintheUnitedKingdom)sharethemanagementofthe14TEEC-certifiedunlistedfundsinEurope.Intotal,thesefundsrepresent€3billioninamountsraised.
Since2014,therehasbeenverysignificantgrowthinthenumberofTEEC-certifiedfundsthatclosedtheirfundraisingeachyear.Therehasbeenatwentyfoldincreaseintheamountraised.
Environmental Indicators
8
4
3
2
Tonnes of CO2 avoided
Installed capacity
Annual production displayed by the equivalent in homes powered
Energy savings attributable to energy efficiency
Number of funds
Most TEEC-certified funds are infrastructurefunds under the Climate/Energy Transitionor Renewable Energy themes. Only onefund is classified as Sustainable giventhe social dimension attributed to someof its investments in telecommunicationinfrastructures (fibernetwork,data centers).The Paris Fonds Vert private equity fundmanaged by Demeter Partners falls undertheEnvironmenttheme,particularlybecauseofitsambitiontosupportSMEsintheareaofinnovativewaste.
MEASURING IMPACT
TEEC-certified funds must produce at least one environmental performance indicator.Certainfundsreferencesocialindicators.Forexample,DemeterPartnersorAcofiGestionpublishinformationonthenumberofjobscreated,theamountofthecompany’sportfolioinvestedinresearch&developmentandinnovation,andthenumberofcompaniesrecyclingtheirwaste.
SECTOR ANALySIS AND FOCUS ON RENEWABLE ENERGy FOR TEEC FUNDS
AmoredetailedinvestmentanalysisshowsthatthemostrepresentedsectorisbyfarthatofRenewableEnergywith11fundsinvested,followedbyEnergyEfficiency(with4fundsinvestinginstorageandcogeneration)andtransportation(1fundinvestedinfreightsystems).Intotal,thefunds’investmentamountsinrenewableenergytechnologiestotal€1billion.
VOLUME BREAkDOWN By THEME
EVOLUTION OF AMOUNTS RAISED By TEEC-CERTIFIED FUNDS
Source:Novethic
Source:Novethic
Renewableenergy
Climate/Energy Transition
Sustainable
Amountsraisedbynewfunds(€M)
Amountinpreviousyears(€M)
Numberoffunds
50%
42%
8%
14
9
531
2018
2,9 bn
201720162015Launch of TEEC label
2014
1 173
936
860307553
24760 60
1 796
Source:Novethic
18 Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME
Emerging demand for greater transparency and impact measurementInstitutionalinvestorswithresponsibleinvestmentpoliciesareincreasinglyturningtounlistedfundsandthereforewanttoseeaminimumstandardfortransparencyanduseofindicatorsinthemanagementreportsaddressedtothem,startingwiththeEuropeanInvestmentBank(EIB).Since2017,SWENCapitalPartnershasintroducedaclimatemeetingclausetoits«primary»operations,whichrequiresaninventoryfromeachcontractedmanagementcompanyontheclimatestrategyofassetmanagers,18monthsaftertheinitialinvestment.Thefirstmeetings,scheduledforMarch2019,willhelpgaugethelevelofcommitmentandthequalityoftheeffortsmade.
TheCarbonInitiative2020,supportedbythePRIandFranceInvest,alsoinvitescapitalinvestmentplayerstoimplementresponsibleandtransparentmanagementoftheCO2emissionsofcompaniesinwhichtheyareshareholders.Theroughly20signatoriesarecommittedtomeasuringthecarbonfootprintofcompanyportfoliosandtopublishingareportin2020.
Non-listed fund managers nevertheless point to the difficulty of implementing the standardised measuresrecommendedbythePRI,GRESBortheTCFD,giventheweaknatureofthedataavailabletothem.ThisiswhytheACT(AssessingLowCarbonTransition)methodologydevelopedbyADEMEisavaluabletool.CreatedinconjunctionwiththeCDP9,itaimstoassesstheabilityofcompanies,particularlyunlistedSMEs,tocopewiththetransitiontoalow-carboneconomyviasectoralbenchmark.Thismethodologywaslaunchedin2017andtestedwithover60companiesofall sizes. It integrates thenatureofacompany’scommitments, themeans implemented,andtheirclimateriskmanagementandtransparencyintermsofcarbonperformance,allforthepurposeofcontinuousimprovement.
At thisstage,climateremainsthebestaddressedtheme,whilereferencestotheSustainableDevelopmentGoals(SDGs)remainextremelyrare.
PRIVATE EQUITy FUNDS ALSO PARTICIPATE IN THE ENERGy TRANSITION
Private equity funds tend to arrange their unlisted company portfolios thematically to meet new demands fortraceability.
Forexample,Bpifrancecontributed€7.7billiontoenergyandenvironmentaltransitionprojectsthroughitsinvestmentandfinancingactivitieswithcompaniesinFrancebetween2013and2018.AccordingtoPhilippeKunter,DirectorofCorporateSocialResponsibility&SustainableDevelopmentatBpifrance, «wehaveobservedaverystrongrise inimportanceofthesesubjects.Theinvestmentgrowthwas+20%between2016and2017».
9Internationalnon-profitorganisationthatholdstheworld’slargestdatabaseontheenvironmentalperformanceofcitiesandbusinesses.
Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME 19
Analysis by sector and green asset technologyThispartofthestudyisdevotedtotheanalysisofportfoliocompositionforprojectsorcompanies,brokendownby«sector».Thismakesitpossibletodeterminethegreentechnologiesactuallyfinanced.
Renewable energy andenergy efficiencyaccountforthemajorityofinvestments(seefollowingpages).
Concerningtransportation,€380millionwasinvestedinrailinfrastructureandfreightsystemsbyaBritishEquitixfund in theUnitedKingdomandbyaScor InvestmentPartners fund invested in France. Therearealso3 fundsfinancingsolutions related to water treatment and management, totalling€1billion:wastewatertreatment inScotland(JohnLaingEnvironmentalAssetsGroup),constructionoftheLondon«supersewer»(DalmoreInfrastructureInvestment) and investment in a French private company (Frasie) specialising in water treatment and industrialwastewater(QuaeroEuropeanInfrastructureFund).
Waste management and pollution control are targeted by 7 funds managed in France, the United kingdom and Luxembourg,eitherbyfinancingrealassetssuchastheprocessing,recycling,transformationandrecoveryofwaste(notablytheEastLondonAuthorityWasteprojectsorWakefieldResidualWasteTreatmentFacility),orthroughinvestmentsinunlistedcompanieslikeLactips(aFrenchcompanybasedintheLoireregionwhichhasdevelopedthermoplasticgranulesbasedonbiodegradablemilkproteins).
Renewable Energy
Energy Efficiency
Carbon capture & storage
Green building
Transportation
Water treatment
Agriculture/forests
Waste/pollution control
Soil rehabilitation
Rail transportation and freight systems Public transportation systems Eco mobility
Waste management Pollution control
Storage Cogeneration District heating (and cooling) networks Smart grid Transmission and
distributionLighting
efficiencyServices related to
the energy transition41
1
8
12
3
7
7
5
SECTORS & TECHNOLOGIESNumber of funds investing in each
sector
Biofuel Hydropower Geothermal Waste to energy Thermal solar PV solar Marine Onshore
windOffshore
windBiomass Small Hydropower
156
Source:Novethic
20 Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME
TheFrenchBrownfieldsManagementandtheSwissGinkgoAdvisorhavedevelopedfundsentirelydedicatedtosoil rehabilitation and remediation,primarilyinBelgiumandFrance,whichtotal€629millioninraisedfunds.
Finnishmanagement companies standoutwith four funds specialising insustainable forest management andplanningoftimberextractionrates,mainlyinthewoodlandsofNorthernEuropeandEasternEurope.
Lastly,threeFrenchfundsandoneDutchfundhavemadegreen real estatetheirspecialty.TheConstructionEnergiePlusfund(€120M)fromtheFrenchOmnesCapital,launchedundertheimpetusofPROBTP,isdedicatedtofinancingconstructionorrenovationprojectsforpublicandprivatebuildingswithhighenergyandenvironmentalperformancein largeFrenchcities.AnotherexampleistheDutchTriodosVastgoedfondswhichholds18officebuildings intheNetherlands.ItistheonlyfundtodatethatshowsallassetsasbeingCO2neutral.
Onlyonepanelfundinvestsinanemergingcarbon capture and storagesolution,namelytheFCPIEcotechnologies,managed by Bpifrance Investissement and financed under the French government’s Investments for the FutureProgram (PIA).However, this sector remainsunattractive to the funds inourpanel: a largemajorityofmanagersbelievethatasufficientlymatureandeconomicallyviabletechnologydoesnotcurrentlyexist.
FOCUS ON RENEWABLE ENERGy TECHNOLOGIES
TheRenewableEnergythemeisinitselfadiversifiedsector,towhichdifferenttechnologiescorrespond.
NUMBER OF FUNDS INVESTED By RENEWABLE ENERGy TECHNOLOGy
Onshorewind
Photovoltaicsolar
Biomass
Waste-to-energy
Offshorewind
Smallhydropower
Biofuel
Geothermal
Thermalsolar
Marine
69
66
23
20
15
84 2 17
Source:Novethic
Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME 21
Thedetailed study,basedona limited sampleof27 funds,displays the specificbreakdownby volumeof assetsinvestedinthevariousrenewableenergytechnologies,foratotalof€5.1billion.
Thesetechnologiesnowconsidered«de-risked»,arethusattractingincreasinginterestfrominstitutionalinvestmentteamsthatareno longerhesitatingtofinancethistypeof infrastructuredirectly.Thefall inthepriceofmaterialscombinedwiththeexpertiseacquiredaroundassociatedriskswiththeseprojects(construction,obtainingpermits,etc.),aswellastheemergenceofhigher-qualitywindorsolarstudies,haveturnedthemintoinvestmentsthatareso«easy»thattheybecomeboringformanagementcompaniesseekingriskandhighreturns.Companiesaremovingtowardsmore«smart»solutions,especiallystoragesolutionsandsmartcitiesviaunlistedcompanyinvestments.
Technologiesin biomass, waste-to-energy,and biofuelsarepositionedfarbehind,takingonly11%oftheamountsinvested.Thesetechnologies,whichareriskierandhavelesspredictablefinancialflows,resembleindustrialactivitiesmore than infrastructure. Funds that finance only operational assets make up a majority of cases (74%). Thedevelopmentandconstructionphasesrepresent4%and6%offundsrespectively.Financingofunlistedcompaniesinthissectoralsoremainsrelativelyundeveloped(15%offunds).Privateequityfundsrepresentonly8%offundsthatinvestinrenewableenergysolutions,comparedwith80%forinfrastructurefunds.
Intermsofprofitability,itisinterestingtonotethatthetargetrateofreturnforfundsentirelydedicatedtorenewableenergiesisaround8.7%onaverage,comparedto9.8%forfundsseekingtodiversifytheirexposurebyinvestinginothersectorssuchasenergyefficiency.Thisconfirmsthetrendobservedamonginvestorstoturntootherriskierandmoreprofitabletechnologies.
Source :Novethic
Renewable energy technologies
1 967
1 876
655
346
76
6
5 076
150
Onshore wind
Photovoltaic (PV) solar
Offshore wind
Biomass
Biofuel
Geothermal
Total
Waste-to-energy
Amount invested(€ M)
PV solarandwindtechnologiesarethemostrepresentedwith76%of the totals investedinrenewableenergy.Theseareproventech-nologies that can produce electricity at aguaranteedrate,forperiodsofupto20years,viaresalecontractswiththeState,alsocalledFiT(Feed-inTariffs). « Institutional investors are very fond of this kind of infrastructure because they allow them to replicate a bond flow with a risk considered "quasi-sovereign", and returns ranging 4% to 5% higher than State debt »,highlightsPhilippeGarrel,HeadofInfrastruc-tureFundsatAcofi.
22 Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME
COUNTRy LOCATION FOR RENEWABLE ENERGy PLANT INVESTMENTS By FUNDS (TOP 10):
Ofthe19fundsinvestedinGermany,13financeonshorewindinfrastructure.ThefactthatmanyGermanroofsarealreadyequippedwithsolarpanelsisoneofthereasonswhythereissolittleinterestinground-basedPVsystemsinthiscountry(4funds).
Unsurprisingly,Italy(19funds)andSpain(10funds),whichbenefitfromexcellentirradiation,areprimarilyhometoPVsolarpanels(17funds).Onshorewindfacilitiesarealsopresentinthesemarkets(9funds).InSpain,thisisduetothefactthatlandownershipconflictisminimal.
FOCUS ON ENERGy EFFICIENCy TECHNOLOGIES
Novethichaslisted41fundsinvestingintheenergyefficiencysector,whichissubdividedintodifferenttechnologiesorservices.Accordingtotheclassificationpresentedonpage9,onlyfundswithathemeotherthanRenewableEnergyarelikelytobeincludedinthissector.TheClimate/EnergyTransitionfundsaretheonesthatfinancethemostenergyefficiencyprojects(28funds)followedbySustainable(8funds)andEnvironmentfunds(4funds).
NUMBER OF FUNDS INVESTED By ENERGy EFFICIENCy TECHNOLOGy (from a sample of 39 funds)
RENEWABLE ENERGy - NUMBER OF FUNDS INVESTING IN EACH COUNTRy (ExPOSURE)
StorageCogenerationServicesrelatedtotheenergytransitionDistrictheating(andcooling)SmartgridTransmission&distributionLighting&displayefficiency
United KingdomFrance
ItalyGermanySwedenFinland
SpainPortugal
IrelandNorway
11
4833
1919
121010
977
9
97
7
64
ThemajorityoffundsinvestinginrenewableenergyfinanceprojectsthatarelocatedintheUnitedKingdom(48 funds)andFrance (33funds).
InFrance,projectsmainlyconcernmaturetechnologiessuchasonshorewind(26funds)andPVsolar(22funds)technologies.
Theprojects targetedby funds investing inrenewableenergyintheUKaredividedbetweenproventechnologiesandriskierprojects:PVsolar (18fundsinvested),onshorewind(16funds),waste-to-energyrecoverymanagement(13funds)andbiomass(10funds).
Fundsarepositioningthemselvesmoretowardspromisingtechnologieswithinstorageandsmartcities.
Themajorityoffundsinvestingintheenergyefficiencysectorfavourdiversifiedexposurethroughothersectorssuchasrenewableenergyortransportation.Lessthanadozenfundsinourpanelareentirelydedicatedtoenergyefficiencytechnologies.
Source:Novethic
Source:Novethic
Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME 23
The funds that operatewithin the energy efficiency sector aremainly (at least for 15of these funds) positionedindirectlyonthissector,thatistosayviafinancingstart-upsorSMEsthatareexpertinthesesolutions.Indeed,energyefficiencytechnologiesaremorelikeindustrialsolutionsandrequirenewskillswithinmanagementcompaniesthatdonotalwaysallowfordirectinvestmentinprojects,especiallysincethecounterpartyriskisalsomuchmoresignificantinthissector.
Aswithrenewableenergyinstallations,themajorityoffundsinvestinginenergyefficiencytechnologiesfinanceprojectsorcompaniesbasedinFrance(14funds)andintheUnitedKingdom(10funds).
Focus: emerging technologies and themesSeveralgreeninvestmentthemesareemergingthatallowthemostambitiousfundstogenerateattractivereturns,evenifthetargetedprojectsarestillsmallandlimited.
ENERGy STORAGE: A NECESSARy COMPLEMENT TO THE DEVELOPMENT OF RENEWABLE ENERGy
Fundexposuretoenergystoragetechnologiescanbeindirectthroughthefinancingofunlistedcompanies,ordirectviafacilitiesalreadyequippedwithanexistingrenewableenergyplant.ThisisparticularlythecaseforMeridiamanditsTransitionfund,whichishelpingtofinancetheworld’slargestelectricstoragebatteryinFrenchGuiana(WesternGuianaPowerPlant).Atotalof11primarilyFrenchfunds inthepanel (€7.9billion)are involved instorage.Thesetechnologiescurrentlyrepresentaratherlimitedrangeofinvestmentsbutshouldincreasewiththedevelopmentofrenewableenergiesandelectricmobility.
SMART CITy: A CROSS-CUTTING THEME
AccordingtotheUnitedNations,citiesconsume78%ofglobalenergyandproducemorethan60%ofCO2 emissions. Someassetmanagementcompanieshaveidentifiedapromisinginvestmentthemearoundtheterm«smartcity».Thisparticularlyconcernsdistrictheatingandcoolingnetworks(7funds),smartlightingsolutions(4funds),thedevelopmentofagreenpropertyportfolio(8funds),andservicesrelatedtoeco-mobility(4funds),smartgrids(7funds),andmoregenerally,servicesrelatedtotheEnergyTransition(9funds).
Thesesolutionsconsistmainlyofoptimisingexisting installationsornetworks inorder tobettermodulateenergyproductionandconsumption.Thisiswhythesefundsaremoreorientedtowardsindirectexposure,throughequityparticipationinspecialisedcompaniesinthesector,ratherthandirectexposuretourbaninfrastructure.
Investor demand is becoming clearerInvestorinterestinunlistedgreenassetsisnotnecessarilystraightforward.Theymainlyseekgeneralistfundsofferingsolidprofitabilityanddiversifiedexposureviaawiderangeofprojects,includingatleastoneortwogreenprojects.Thisexplainsthelowdemandforin-depthenvironmentalreporting.
Reportingrequirements,particularlyinthecontextofArticle173oftheFrenchEnergyTransitionLaw,neverthelessencourageinvestorstocommunicateontheirgreeninvestmentsandthereductionofcorrespondingCO2 emissions. Thatsaid,theamounts investedbyFrenchinstitutional investors inTEEC-certifiedfundsremainmarginal (€1.4bninvestedinrenewableenergyinfrastructurefunds10).
10SeetheNovethicstudy,173ShadesofReporting,Season2,p.6.
24 Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME
Atthesametime,thereisagrowingphenomenonofinstitutionalinvestors,especiallypensionfunds,whochoosetodirectlyinvestincertaingreeninfrastructuresthatofferthemaclearandstableovertimerisk/returnprofile.TheseincludeonshorewindfarmsorPVsolarpanelpowerplantsalreadyinoperation.ForthemainFrenchinstitutionalinvestors,directinvestmentsinrenewableenergyinfrastructurerepresent€1.8billion11.
Inthefaceofcompetition,managementcompaniesareforcedtofinancethecreationofnewproductioncapacitiesornewtechnologies.Thus, theyare intervening furtherupthefinancingchain forprojects in the infrastructureconstructionphaseorevenat theendof thedevelopmentphase.This increasedrisk-taking isoffsetbyhigherreturns:whilefundsinvestinginassetsalreadyinoperation(brownfield)generateanaveragereturnof8.9%,fundsspecificallytargetingassetsyettobebuilt(greenfield)sawaveragereturnsof13.3%.Similarly,fundmanagerscanrelyonlessmaturetechnologiessuchasenergystorage,ormoreinnovativethemeslikethesmartcitytechnology,togeneratereturnsfortheirinvestorsthatrewardsuchexpertise.
Inaddition,somemanagers,suchasCubeInfrastructureManagers,ImpaxAMorOmnesCapital,takeanapproachthatallowsthemtoofferavarietyofprojectstotheirsubscribers.Bycombiningthelogicofprivateequityvaluecreation with the specific willingness within infrastructure investment to see projects being built, these actorsareabletoaccessclustersofprojectsassociatedwithrisk/returnprofilesthataremoreattractiveduetodirectparticipationwiththeprojectdevelopers.Somechoosetomultiplysmallprojects,suchastheinstallationofPVsolarpanelsontheroofsofprivatehomesintheUnitedKingdombyAvivaInvestors.Goodreturnsthenmakeitpossibletofinancetheaggregator’swork.
Lastly,partnershipsbetweenmanagementcompaniesandindustrialistsaremultiplying,suchastheoneconcludedbetweenATE(AmundiTransitionÉnergétique),anassetmanagementcompanyjointlyownedbyAmundiandEDFwhichisentirelydedicatedtotheenergytransition,andDalkia(specialistinenergyservicesandheatingnetworks).Thesepartnershipsallowmanagementcompaniestocombinetheirfinancialexpertiseofunlistedassetswiththetechnicalexpertiseprovidedbycompaniesinspecialisedfieldssuchasenergyefficiencytechnologies.
11SeetheNovethicstudy,173ShadesofReporting,Season2,p.6.
Europe:promisingtrendsinunlistedgreenfunds•January2019•NovethicinpartnershipwithADEME 25
DaTa cOLLEcTION METhODOLOGy
The panel and Novethic databaseTocompletethisstudy,Novethiccross-checkedandanalysedmorethan500unlistedfundsavailableinEurope.Thesefundscomefromahandfulofdatabasesdedicatedtounlistedfundsthatinvestinbothcompaniesandrealassets(infrastructure,buildings,forests).ThedatabasesusedincludeIj Investors12andMorningstar(forFIPandFCPI).
Overall,Novethicgathered223fundssoldorclassifiedasenvironmental,duringallorpartoftheperiodcovering1990-2018.Thedetailedanalysisofalltheseelementsled toapanelcomposedofAlternative InvestmentFunds (AIF) investedspecificallyinenvironmental industries(water,renewableenergy,energyefficiency,etc.)andintechnologiesandprojectswithaprovenenvironmentalcontribution(cleantransport,wastemanagement,etc.).
Inordertoreachafinalpanelof223funds,variouscriteriawereretained:
Headquartersofthemanagementcompany:mustbelocatedinEurope;
Geographicalexposureofthefund:tobeincludedinthepanel,50%ofthefund’sassetsmustbelocatedinEurope.Forfundsmeetingthiscriterion,anygreeninvestmentsoutsideEuropehavenotbeentakenintoaccount;
Assetsheld:aportfoliomustconsistofatleast50%greenassets.
Theattributionofaspecificthemetofundswascarriedoutaccordingtotheinformationavailable:
Eitherthedifferentinvestmentsmadebythefundareknown,whichmakesitpossibletohaveamoregranularlevelofinformationbytechnologyandsector,andthusallowustodeducethecorrespondingtheme(seegreenclassificationaccordingtoNovethic);
Or,thedegreeofknowledgeoftheinvestmentsmadebythefundistooloworithasnotyetstartedtoinvest.Inthiscase,therankingisbasedonthecommercialandmarketingpositioningofthefundandthetargetedsectorsinordertodeducetheappropriatetheme.
12https://ijglobal.com/ij-investor
with the support of
JaNUaRy2019
A study conducted between July and November 2018 by Jade Dusser Afonso, Julie Nicolas and Dominique Blanc of the Novethic Research Centre.
The sustainable transformation accelerator of the Caisse des Dépôts Group. Anexpertinsustainablefinance,areferencefortheresponsibleeconomyandnowanexpertiseaccelerator,Novethiccombinesapproachestoofferfinancialplayers,companiesandtheiremployeesthekeystosustainabletransformation.Research,fund analysis, market statistics, High-Impact SRI... our sustainable finance teamstrives toenhance the transparency, reliabilityandpositive impactof responsibleinvestmentandmanagementsolutions.
www.novethic.fr
© Novethic 2019 - Reproduction in whole or in part must be authorised by Novethic. Any citation or use of data must clearly indicate the source.
EuropE :PROMISING TRENDS
IN UNLISTEDGREEN FUNDSThE GREEN FUND MaRkET IN
INFRaSTRUcTURE, PRIvaTE EqUITy, PRIvaTE DEbT, REaL ESTaTE
aND FOREST