Private Markets and Renewable Energies: A Winning Combination for Climate and Financial Gains
As the world shifts towards a more sustainable future, renewable energies have become a hot topic in the private markets. But is there a trade-off between investing in renewable energy and achieving financial gains? According to a recent analysis by MSCI, the answer is no.
In fact, private fund exits from investments in renewable energies have consistently generated higher aggregated investment multiples compared to exits in the oil and gas industry. This trend has been observed every year from 2016 to 2023, up until the fourth quarter of 2023.
To understand the perception of a potential trade-off between climate impact and returns in renewable energy investments, MSCI compared the returns of private investments in the renewable electricity subindustry to those in the oil and gas subindustry. While these two subindustries may differ in their operations and business models, a comparative analysis can provide valuable insights into the investment appetite and relative robustness of the exit markets in both spaces.
The results of the analysis were clear – renewable exits have consistently outperformed those of oil and gas in terms of investment multiples and internal rate of return (IRR) since 2016. This suggests that the perception of a trade-off between climate impact and performance may not reflect the financial returns of renewable investment exits.
This is good news for investors looking to make a positive impact on the environment while also achieving strong financial returns. In fact, the strong exit market for renewables in recent years has led to an increase in net capital flows, providing the industry with the necessary capital to achieve the net-zero emissions goal.
In conclusion, the data shows that investing in renewable energies in private markets can be a win-win situation for both the environment and investors. With renewable energy investments consistently outperforming those in the oil and gas industry, it is clear that these assets are becoming more relevant to a broader range of energy investors, regardless of their climate focus. So, if you’re looking to make a positive impact while also achieving financial gains, renewable energies in private markets may be the way to go.