Published on 07 February 2019

SUSTAINABLE FINANCE

Unlisted green funds: many opportunities but very little impact

Nearly €60 billion has been invested in unlisted European green assets by 223 funds. This is the result of the new Novethic study on unlisted green asset funds, conducted in partnership with Ademe, revealing an asset class that interests investors more for its profitability than its positive environmental impact. The rise in climate reporting obligations and European labels could perhaps awaken ecological interest.

The Novethic and Ademe study lists €57.6 billion in unlisted green assets managed by 223 funds in Europe.
@Novethic

The unlisted market also concerns green assets. The latest findings from the Novethic and Ademe research centres identified some 223 European funds dedicated to the environment, with €57.6 billion in green assets under management. This figure has been growing steadily since 2016, with the COP21 driving the boost in fundraising.

Renewable energy remains the most promising amongst management companies, with 122 financial products dedicated to this theme and almost 46% of the total amount of green funds (€27 billion). In terms of asset class typology, infrastructure funds largely dominate the market and account for 76% of total green funds.

The sum of green assets under management remains modest, accounting for only 6.5% of total unlisted European loans. The total is much higher than that of listed green funds, which reached €32.2 billion in 2017, or just under 1% of all European assets under management.

According to the Sustainable Finance Action Plan launched by the European Commission, the additional green financing needed to achieve ecological transition goals is roughly €180 billion per year by 2030. Even if the unlisted market is included, it’s not good enough...

Attractive returns

"It is clearly the financial attractiveness that interests investors, rather than the desire to invest in an environmental strategy," said Dominique Blanc, Director of the Novethic research centre. Non-listed infrastructure funds in renewable energy offer attractive and low-risk returns for investors, around 8.9% for active projects and up to 13.3% for a project under development.

As a result, investors who are more attracted to financial returns are not as interested in monitoring the environmental objectives of these assets. "The theme of green energy is more opportunistic than a real focus for our investors”, confirms Jean-Francis Dusch, Director of Infrastructure Debt Management at Edmond de Rotschild Asset Management in London. “They are interested in our ‘Energy and Ecological Transition for the Climate’ label (Ed. the TEEC label for which Novethic is an auditor), but above all, they want to make sure that we are able to diversify our investments".

The market is starting to change, however. "More and more institutional investors are creating a space for dedicated green investments," says Stéphanie Chrétien, partner at Demeter, a management company specializing in green investing. According to her, two factors explain the recent trend: environmental awareness on the part of the general public, public authorities and large companies, and the acceleration of technological innovations. "They enable solutions that combine profitability and impact," said Chrétien.

Revitalise Ecolabels

Another factor adding to this dynamism is renewed interest in climate reporting. Public institutional investors, such as the European Investment Bank (EIB), are already asking for detailed information about the funds in which they invest. The European Commission's Sustainable Finance Action Plan also aims to strengthen transparency requirements for ESG practices by institutional investors, which will encourage them to take on more active interest in green funds.

To close the circle, the European Commission is working on a European Ecolabel that would make it easier to move funds towards environmental assets. "Will this Ecolabel be inspired by the French TEEC label? We hope so and we will do everything to make it happen", says Elise Calais, Deputy Director of Environmental Responsibility for Economic Actors at the Ministry of Ecological and Solidarity Transition.

Created in 2015, the TEEC label was awarded to 14 unlisted funds representing nearly €3 billion. However, the label still suffers from lack of notoriety. "We would be interested in embarking on the Ecolabel if it does not require too much adaptation," said Calais. Meanwhile, the ministry plans to review communication around the TEEC label in 2019 while reflecting on a new logo.

 Arnaud Dumas @Adumas5


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