The UK government is set to put up to £ 25m of public money behind the launch of an investment fund focused on renewable energy projects in Asia, as it seeks to encourage investors to support green projects.
ThomasLloyd, an infrastructure investment firm, announced on Thursday that it aims to raise $ 300 million in public offering for a new vehicle that will invest in sustainable electricity infrastructure in emerging markets in Asia.
In an extraordinary move, the Foreign Office, Commonwealth of Nations and Development (FCDO) said it would invest up to £ 25 million in the launch as part of its efforts to encourage asset managers to support environmental investments in developing countries.
Retail investors in the UK will be invited to join the fundraising alongside the government and other supporters, through investment platforms, said Thomas Lloyd.
The move, announced by the government during COP26 in Glasgow, comes after Chancellor Rishi Sonak announced his ambition for Britain as a green finance center, calling on financial companies to “raise private funding quickly and on a scale”.
“Asia is the largest and fastest growing energy consumer in the world and emits the largest CO2 emissions,” said Tony Cubney, head of infrastructure assets at ThomasLloyd Group, noting the region’s rapid population and economic growth as attractive factors for investors.
Emerging markets and emerging economies currently hold 67% of the world population, but attract only 16% of global investment in clean energy, according to the International Energy Agency.
Renewable infrastructure investment funds have risen in popularity among investors who have been swayed by their steady income streams and green approvals.
Investment funds of all kinds have raised a record £ 8.71 billion this year, but more capital – £ 1.7 billion – has been raised in the field of renewable energy infrastructure of any other kind, according to the Association of Investment Companies (AIC), the trust investment body.
Investment funds are a category of investment instruments in the UK built as listed companies and are popular with investors looking to invest in illiquid assets such as infrastructure. They allow investors to enter or exit their positions while the fund retains its underlying assets.
Mutual funds, on the other hand, typically have to buy and sell their underlying assets to accommodate investor inflows and outflows, making it difficult to fund long-term projects.
But analysts say investors need to approach such long-term investment opportunities with caution. Simon Elliott, head of investment trust research at Winterflood Securities, said: “It can take time for the capital to be fully liquidated to the point where it will start yielding significant returns.”
He warned that the share price of an investment or mutual fund is often different from the value of its underlying assets, known as its net asset value, “although the vast majority of listed infrastructure funds are traded at a premium rating today.”
Thomas Lloyd’s new impact fund aims for a total return of 10-12 percent per annum “in the medium to long term.” The trust will fund solar, wind and biomass projects and focuses mainly on India, the Philippines and Indonesia, but includes projects in Vietnam and Bangladesh.
The FCDO said clean energy stocks in emerging and emerging markets “consistently surpass the MSCI Emerging Markets Index”, providing investors with “return, diversification and more and more impact”.
Some climate gymnasts are skeptical about pushing financial institutions to drive the transition to net zero. David Barms, a senior economist at Positive Money, a nonprofit campaign group, said such initiatives could be “counter-productive” in efforts to reach net zero, adding that “if motivation remains maximized profits and financial return, then the focus is not on staying within planetary boundaries.”