The UK government is to put up to £25m of public money behind the launch of an investment trust focused on renewable energy projects in Asia, as it seeks to encourage investors to back green projects.
ThomasLloyd, an infrastructure investment company, announced on Thursday that it aims to raise $300m in a public offering for a new vehicle that will invest in sustainable power infrastructure in Asia’s emerging markets.
In an unusual move, the Foreign, Commonwealth and Development Office (FCDO) said it would invest up to £25m in the launch as part of its efforts to encourage asset managers to support environmental investments in developing countries.
UK retail investors will be invited to join the fundraising alongside the government and other backers, via investment platforms, ThomasLloyd said.
The move, announced by the government during COP26 in Glasgow, comes after chancellor Rishi Sunak laid out his ambition for the UK as a centre of green finance, calling for financial firms to “mobilise private finance quickly and at scale”.
“Asia is the world’s largest and fastest-growing consumer of energy and the largest emitter of CO2,” said Tony Coveney, head of infrastructure asset management at ThomasLloyd Group, citing the region’s rapid population and economic growth as attractive factors for investors.
Emerging markets and developing economies currently hold 67 per cent of the world’s population, but only attract 16 per cent of global clean energy investment, according to the International Energy Agency. Renewable infrastructure investment trusts have surged in popularity among investors lured by their steady income streams and green credentials. Investment trusts of all kinds raised a record £8.71bn this year, but more capital — £1.7bn — was raised in the renewable energy infrastructure sector than any other, according to the Association of Investment Companies (AIC), the trade body for investment trusts.
Investment trusts are a category of UK investment vehicles structured as listed companies and are popular among investors looking to invest in illiquid assets such as infrastructure. They allow investors to enter or exit their positions as the fund keeps hold of its underlying assets.
Mutual funds, by contrast, must generally buy and sell their underlying assets to accommodate investors’ entrances and exits, making it harder to fund long-term projects.
But analysts say investors should approach such long-term investment opportunities with caution. Simon Elliott, head of investment trust research at Winterflood Securities, said: “It can take time for capital to be fully deployed to the point that it starts to produce meaningful returns.”
He warned that the share price of an investment company or trust is often different from the value of its underlying assets, known as its net asset value, “albeit the vast majority of listed infrastructure funds are trading on premium ratings at present”.
ThomasLloyd’s new energy impact trust is targeting a net asset value total return of 10-12 per cent a year “over the medium to long term”. The trust will fund solar, wind and biomass projects and is focused mainly on India, the Philippines and Indonesia, but includes projects in Vietnam and Bangladesh.
The FCDO said that clean energy equities in emerging and developing markets “consistently outperform the MSCI Emerging Markets Index”, providing investors with “yield, diversification and increasingly, impact”. Some climate campaigners are sceptical about the push for financial institutions to drive the net zero transition.
David Barmes, a senior economist at Positive Money, a not-for-profit campaign group, said such initiatives could be “counterproductive” in the efforts to reach net zero, adding that “if the motivation remains profit maximisation and financial returns, then the focus isn’t about staying within planetary boundaries”.