Private equity firms speed up their transition from fossil fuel assets to renewables

• 43% of GPs will begin divesting from fossil fuel assets in the next 12 months while 31% have already started
• European GPs expected to be the quickest, North American firms the slowest
• Divestment process expected to take 3.5 years on average
• 92% of GPs say the investment outlook for renewables is positive or very positive

A new study¹ reveals that private equity firms are expected to rapidly accelerate their divestment from fossil fuel assets over the next 12 months in response to a tightening regulatory climate and increased demand from institutional investors to pivot to renewable energy assets.

The new study, ‘Private Equity: navigating challenges and opportunities in the new geopolitical climate’, was commissioned by Auxadi, a leading provider of accounting, tax and payroll services to private equity and real estate fund managers and multinationals. The research was based on interviews with 100 senior-level private equity investors based in the UK, Continental Europe and North America with average assets under management of €14.4 billion.

The research shows that over four-in-ten GPs (43%) say they plan to begin disposing of all their carbon assets in the next 12 months, while almost a third (31%) claim to have already done so. Just 8% believe it will take more than a decade.

On average, private equity firms expect it will take three years and eight months to be fully divested with North American GPs taking four and a half years and European firms just seventeen months.

The urgency with which GPs are reducing their exposure to fossil fuel is matched by their appetite for acquiring renewable energy assets.  Last year saw an estimated $21.5 billion² invested in the US renewable energy sector alone – an increase on the $7.3 billion recorded in 2019.

Nearly all (92%) respondents said the outlook for private equity funds investing in renewable energy is either very positive or positive and over the next five years, 95% plan to invest in wind and solar assets, 83% in hydro, 82% in biomass, wave (77%) and marine (75%).

According to the study, the biggest drivers behind private equity’s growing appetite for renewables are pandemic-driven government commitments to infrastructure (67%), climate change risks (62%) and the falling costs of building renewable assets (54%),

Rima Yousfan, Head of Funds at Auxadi said: “Private equity investors are speeding up their transition from fossil fuels to renewables with European-based GPs moving much more quickly than their North American counterparts.  There are multiple reasons for the urgency being applied to this, including a deeper adoption of ESG principles, demand from their investors, and an increasingly attractive investment climate for renewables, exacerbated by the energy crisis.

“As GPs dispose of their carbon assets and search for new investment opportunities in the clean energy space, there’ll be a demand on capacity, so we expect to see a rise in the number of firms outsourcing administration needs to third-parties.”

Notes to editors

¹  Research conducted by Pure Profile among a panel of 100 senior-level private equity investors in May 2022. Respondents were split evenly between the UK, Continental Europe and North America

² New AIC & PitchBook Report: Private Equity Investment in Clean Technology Rose to Over $27 Billion in 2021. Hitting Record High, published by the American Investment Council on 21 April 2022

Sam Stewart
Citigate Dewe Rogerson
samantha.stewart@citigatedewerogerson.com

Chris Jarvis
Citigate Dewe Rogerson
chris.jarvis@citigatedewerogerson.com