International Energy Agency and Imperial College London research further underlines strong investment case underpinning renewables sector
Shares in renewables firms have "significantly" outperformed fossil fuel stocks in the US, UK, Germany, and France over the past decade and displayed far more resilience to the disruption caused by the coronavirus pandemic since the turn of the year, a study led by the International Energy Agency (IEA) has found.
The research, undertaken by Imperial College London in collaboration with the IEA, looked at the performance of listed companies in the US, UK, Germany, and France involved in fossil fuel supply and compared them to firms active in renewables over the last decade.
It found that renewable power shares displayed less volatility and offered investors "significantly higher" total returns than fossil fuel stocks, further underlining the compelling investment case for clean energy.
In the US, renewable power stocks rose over 200 per cent between 2010 and 2020, more than double the total gains for fossil fuel stocks, which climbed 97 per cent. In France and Germany, fossil fuel returns actually plunged by a quarter over the period, while returns from renewables rose 171 per cent.
And while the study lacks data for the UK between 2010 and 2015 due to a lack of listed companies for the period, the story over the past five years is markedly similar, showing total returns on renewable power stocks up over 75 per cent compared to less than nine per cent for fossil fuels.
Moreover, the study provides striking evidence that since the Covid-19 pandemic began to escalate wreaking havoc to the global economy renewable power stocks in the US still saw total returns rise 2.2 per cent over the past four months. In contrast, fossil fuel stock returns plunged over 40 per cent.
However, the study authors warned that while the investment case for clean power was a strong one, capital allocation to renewables via stock markets is still falling well short of global targets to decarbonise energy supplies, largely due to a raft of obstacles facing investors.
Dr Charles Donovan, executive director of the Centre for Climate Finance and Investment at Imperial College Business School, said regulatory barriers meant renewable energy securities often do not count as eligible investments, while opportunities to back clean power remain limited for individual investors.
"There's momentum gathering behind renewable power, based on its economic advantages," said Donovan. "Our results show that renewable power is outperforming financially, but has still not attracted sizable support from listed equity investors."
He added: "Existing norms in the investment industry will have to change to provide savers and pensioners with better ways to participate in the upsides from a clean energy transition."
The study joins a growing body of research highlighting how green stocks tend to outperform the market. Most recently research by HSBC also found that stocks in companies focused on climate change or environmental social governance (ESG) outperformed the rest of the market at the pandemic spread at the start of the year.
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