Monthly Archives: June 2020

ESG Investing and Clean Energy Project Finance

ESG Investing and Clean Energy Project Finance

More than 25% of investors are considering or actively engaged in responsible and sustainable investing, according to a report from deVere Group. deVere, a global financial advisory and fintech firm, states that “since the beginning of May, 26% of clients around the world are eyeing exposure to or are now part of the environmental, social and governance (ESG) “megatrend”.”

The impetus for the increased interest in ESG, unsurprisingly, is the COVID-19 pandemic, which, according to the report, has “shifted the values of our society.” In addition, companies that have performed better through the health crisis generally have been those that adhere to ESG principles, including diversity, transparency and social responsibility.

The result is huge ESG stock and bond fund inflows, a trend that is expected to continue. deVere CEO Nigel Green noted, “as millennials, who are statistically more likely to seek responsible investment options, become the major beneficiaries of the largest intergenerational transfer of wealth – an estimated $30tn in the next few years – we can expect both retail and institutional investors to continue to pile into ESG.”

What does the ESG “megatrend” mean for renewables, and clean energy project finance in particular? While utility-scale energy project finance is familiar territory to institutional investors, we at Windmill Capital have seen astute investors beginning to prioritize the C&I segment. Buzzwords attracting investor attention today include renewable, distributed energy and circular economy, 

In addition, clean energy project finance represents one of the few “pure” ESG strategies, as 100% of the investment furthers environmental and social goals. There are a number of resources available today to “certify” projects or financing as “green.” These certifications are relatively inexpensive and will become industry standard for clean energy project financing.

As a result, we see the C&I clean project finance market evolving rapidly over the coming months and years. In particular, we expect:

  • Direct investments will become a focus for investors building in ESG criteria.
  • ESG funds will add more direct investments to marketable securities portfolios to increase market differentiation.
  • Certification will facilitate identification of investments that align with ESG goals, further increasing demand for these investments.

The fact remains, however, that fixed costs reduce the attractiveness of small investments. Windmill Capital utilizes a proprietary origination network and leverages technology to streamline the underwriting process to minimize transaction expenses. In addition, we’re constantly educating new and existing investors about market trends and transaction opportunities.

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