According to the The Economics of Transition in the Power Sector Report released by the International Energy Agency (IEA), the transition to a low carbon economy will require $7.3 trillion in investment between 2010 and 2030. Naturally, a transition of this magnitude will require heavy involvement from the largest asset managers in the world: pension funds, sovereign wealth funds, banks, and other private managers.
That said, individual investors also have an important role to play in the manifestation of our clean energy future. Both of our firms (Wunder Capital and CoPower) are focused on bringing clean energy investment opportunities to individual investors.
Here’s why we are bullish on the power of the people:
1) Aligning individual investor portfolios with low carbon investments can have a scalable impact.
In 2015 alone, 6 million Canadians contributed $39 billion to a registered retirement savings plan (RRSP). In total, over $775 billion are held in such plans. And in the United States, retirement assets hit $26.1 trillion as of Q1 2017, according to the most recent data from the Investment Company Institute.
Individual investors are increasingly looking for products that match the profile of clean energy infrastructure: products with market-competitive yield and a positive environmental impact. According to Morgan Stanley, over 70% of active individual investors are interested in sustainable investing and 65% see sustainable investing becoming even more prevalent in the coming 5 years. Global Sustainable Investment Alliance (GSIA) similarly reports that 75% of Millennials are guided by environmental, social, and/or political impacts when they invest, and 75% of women consider positive ethical impacts when investing, (compared to 60% for men). It’s clear that retail-focused clean energy financial products can mobilize huge amounts of capital.
2) Individual investors are a perfect fit for under-served sectors in clean energy
As individual investors seek yield in today’s market, financing for clean energy projects is an increasingly attractive opportunity. While these projects require upfront installation costs, they do generate strong returns for 35+ years. This uncorrelated asset class is meeting the investment needs of more and more individual investors today.
The capital behind these massive infrastructure investments has traditionally come from government, corporate bonds, and large institutional investors. While mainstream capital market players are already providing ample project finance for large projects, a wide range of projects are underserved. This is because a typical infrastructure investor, like a bank or pension fund, is often only interested in projects that are larger than $10, 20, or even $50 million.
Solar financing for the middle of the commercial market is one such underserved market.
Larger US businesses (top 5% by size) are typically able to receive a credit rating from one of the big three rating agencies, while the other 95% of businesses are usually left out. This means lenders are reluctant to finance solar assets for these companies because of the cost of underwriting, in addition to their lack of solar expertise.
Wunder’s novel approach matches accredited investors in the US with diversified solar funds that lend into this underserved commercial-scale solar market. Investors can help deploy more solar across the USA without sacrificing return expectations.
Similarly, CoPower addresses underserved lending markets in Canada. Smaller clean energy generation and energy efficiency projects, like solar, geothermal, and LED lighting retrofits, lack access to project finance. Using a Green Bond product, CoPower helps all types of individual investors in Canada lend into a pooled portfolio of these type of loans.
3) Clean energy is a huge wealth creation opportunity, made accessible to individual investors via fintech platforms:
Bloomberg New Energy Finance estimates that $7.8T will be invested in renewable energy between now and 2040 (with only $2.1T being invested in fossil fuels) source: BNEF. Platforms like Wunder and CoPower open up these investment opportunities to individual investors who otherwise wouldn’t be able to access these types of infrastructure investments. With lower minimums, made accessible by new online ‘fintech’ platforms, individuals can fund renewable energy investments across North America.
Why shouldn’t we all stand to profit from the greatest wealth creation opportunity, and environmental call to action, of our time?