Going Green with Green Investments

With the climate change issue getting serious and impacting the lives and economies globally, the effort to go green has been put in motion since almost a decade ago. Since then, investments focusing on green assets are gaining momentum where sovereign wealth funds held US$26 billion in green investments in 2023, surpassing black investments by more than double. 

Typically, sovereign wealth funds (SWFs) are government-run pools of capital typically derived from surplus reserves or revenues from commodity exports whilst green assets include investments in renewable energy and electric vehicles and black assets are seen across fossil fuels and finite resources. 

The data illustration shows a clear decline in SWF investment in 2021 and 2022 for black asset, but a slight uptick in 2023.

In contrast, strong momentum in green assets have attracted significantly more investment over the past 3 years. This may have been driven by pressure to accelerate the transition to renewable energy post-COVID.

Singapore-based GIC and Temasek are some of the SWFs that made big commitments in 2023, with the former deploying US$3.2 billion into the green energy sector. Meanwhile, Saudi Arabia’s Public Investment Fund (PIF) has provided billions in capital to Tesla-rival, Lucid, as well as founding Ceer, the first Saudi EV brand.

In 2023, the New Zealand government collaborated with BlackRock to introduce a US$1.2 billion fund dedicated to climate infrastructure. This initiative, spearheaded by one of the world’s leading funds in renewable investments, seeks to expedite New Zealand’s decarbonization endeavors. The ultimate goal is for New Zealand to stand among the pioneers in achieving a 100% renewable-powered electricity system.

The Green Energy Spending Forecast

Global clean energy funding is projected to amount to a total is US$5.6 trillion between 2022-2030, driven mainly by the need for alternative sources for carbon-intensive energy sources. According to S&P Global, however, this climate funding still falls short of reaching the goals laid out in the Paris Agreement. Below illustration shows where the investment is projected to be allocated to over the next decade based on forecasts from S&P Global.

By 2030, global investment in clean energy is predicted to soar to US$2.8 trillion, with solar energy leading the pack as the recipient of the lion’s share. Distributed solar systems, including rooftop installations in residential, commercial, and public spaces, are anticipated to claim 26% of this investment, while utility-scale solar projects are expected to secure 23%.

Following closely behind, wind power is forecasted to attract US$1.9 trillion in investments, with onshore wind projects accounting for 20% and offshore wind projects receiving 14% of the funds, amounting to US$774.2 billion. Both the United States and the European Union have implemented incentives, such as new tax credits from the Treasury Department, to support offshore wind companies.

Looking ahead, S&P Global’s projections suggest that renewable energy investment will reach US$700 billion annually until 2050. However, achieving net-zero emissions by 2050 would require doubling this figure to US$1.4 trillion per year. In another word, there is still more room for investment in the green investment and renewable energy in order to double the figure per year and the future investment trend would be inclined towards green investments, at least for the next few decades to come.