Covid Investors, a rather new term, are people who have capital to invest and have been awoken by the Covid-19 global crisis to the power of externalities like viruses but also climate change. People are seeing the damage caused firsthand and the penny has dropped that if you wait until you can feel the impact, it’s too late. Game over.
For this reason, Covid Investors are looking more into investing in renewables. And they aren’t the only ones. Private capital under management and sovereign funds are about to flood the market to stimulate the rebuilding of the world economies but, unlike previous crashes, this one’s going to be green.
Banks Still Bullish on Renewables
The banks, even now when small businesses and mortgage holders are defaulting en masse, are still positive on renewables. “Every bank that I’ve talked to has told me that renewable energy is viewed as AAA in quality, so they are all in on investing in renewables.” Say Jigar Shah, co-founder of Generate Capital in an article by Greenbiz. But, as deposit rates are set to stay low, or drop even further, the demand for yield from individuals and funds with cash will be heightened, making green assets in more demand than ever due to their steady income streams and cash flows.
The Markets See the Appeal
The capital markets are also bullish on renewables. Currently the top three Alternative Energy ETF’s have had a yearly performance of approximately 52%. This shows how well the industry is performing, even amid the Covid pandemic. With wind and solar projects being delayed, investors, companies and governments show no signs of taking their foot off the pedal. In fact, we think they will double down on their efforts as the macro signals are so strong. Those who can survive the near-term shock will emerge into a rising tide of green activity. According to one source “renewable-power generation is largely uncorrelated to oil and natural-gas markets, which further strengthen their overall appeal, and may well be the first asset classes to unfreeze”.
The Wall of Cash
Behaviorally, Covid investors like the idea of being able to invest in this asset class and support an industry combating climate change whilst making decent returns. That’s good news, as we’re going to need a lot of cash. Between $4-5 trillion is required to enable America to go 100% renewable energy by 2030/2040 and roughly the same again for the EU. The United Nations Intergovernmental Panel on Climate Change authored by 91 experts found that meeting a target of 1.5 degrees Celsius requires annual average investments in energy at $2.38 trillion, just over the current rate in fossil fuels. But the returns are strong and sustainable.