AIC’s Annabel Brodie-Smith reminds us that closed-ended investment companies are no strangers to ESG, impact investing and renewable energy infrastructure
Climate change issues will justly remain at the top of government, professional and personal agendas for the foreseeable future. Recent developments have included UK Prime Minister Boris Johnson agreeing to legislation targeting the reduction of UK emissions by 78% before 2035, and the launch of yet another catchy ESG acronym: GFANZ, or the Glasgow Financial Alliance for Net Zero.
GFANZ sees Mark Carney, UN Special Envoy on Climate Action and former Bank of England governor, pull together over 160 financial firms responsible for around $70 trillion of assets. Their mission is simple: to accelerate the transition to net zero by 2050. Carney also happens to be one of the prime minister’s advisers for the COP26 summit in Glasgow in November, an event looming large in the climate change calendar.
A growing appetite
Such political and regulatory developments add fresh impetus to the ever-growing appetite for ESG and impact investing strategies and vehicles. In the closed-ended investment company world, the pace of change seems to have accelerated in recent weeks. We’ve just seen Acorn Income, in the UK Equity and Bond sector, propose a change of objective to pursue a sustainable global equity income strategy, which would see it switch manager from Premier Miton to BMO. Just days before that announcement, RM Secured Direct Lending revealed that it was changing its name to RM Social and Environmental Infrastructure, to reflect its refreshed investment focus on assets with positive social and environmental impact which now make up 28% of its portfolio (expected to rise to over 50% by the end of 2021). And a week before that, Liontrust announced its intention to launch an ESG-focused investment company with a mandate to invest in less liquid companies. Managed by Peter Michaelis, Simon Clements and Chris Foster, the company is targeting a fundraise of £150 million at IPO.
Numbers on the rise
But investment companies have been doing impact investing for years, even if they didn’t always call it that. The first renewable energy infrastructure investment company, Greencoat UK Wind, was launched back in 2013 and there are now 17 companies in the AIC’s Renewable Energy Infrastructure sector with assets of £11.4 billion. This sector has proven a popular hunting ground for climate-conscious investors as well as those in search of sustainable and attractive dividends. Fundraising within the sector during 2020 reached over £1.8bn, more than double that of the Property – UK Commercial sector which came in second, according to data from Morningstar and the AIC.
There has been considerable appetite for IPOs. Out of the eight investment companies to come to market last year, three were in the Renewable Energy Infrastructure sector. The figures become even more impressive if you take into account that all this corporate activity took place during a global pandemic. It seems momentum has continued into 2021 and we have already seen a launch in the Renewable Energy Infrastructure sector this year, VH Global Sustainable Energy Opportunities, raising £243m in February. More evidence of continued demand could be seen via US Solar Fund’s oversubscribed fundraise earlier this month, which raised $132 million of fresh capital. The initial target was $105 million.
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