Global investors are increasingly moving away from the renewable energy sector funds this year due to concerns over the sector's growth prospects and uncertainty over policies in a U.S. election year, fund data show.
Renewable energy sector funds witnessed steady inflows in the past few years, bolstered by consumers willingness to pay more for environmentally sustainable products and services and supportive policies in the United States and Europe.
Now, however, the dampening impact of high interest rates on investment and uncertainty over future energy policies are challenging the renewable energy sector.
By the numbers
LSEG Lipper data shows funds that invest in renewable energy stocks had an outflow of $4.8 billion in the first quarter of the year, marking the largest quarterly withdrawal to date.
The Handelsbanken Hallbar Energi saw the biggest first-quarter outflows of $458 million, followed by iShares Global Clean Energy ETF and Ninety One Global Environment Fund with $335 million and $226 million, respectively.
The S&P Global Clean Energy index, comprised of major solar and wind power companies and other renewables-related businesses, is down nearly 10% this year, while the oil and gas-heavy S&P 500 Energy Index is up 16.3%.
Why it's important
Global renewable energy capacity is expanding at a pace well short of what is needed to meet targets agreed at last year's COP28 climate summit in Dubai and dwindling investor interest could hinder progress towards achieving climate objectives.
The world's top wind power groups, Siemens Energy, Orsted and Vestas, are forecasting a dire year for an industry buffeted by regulatory delays, equipment problems and rising costs.
In the United States, many solar, wind and energy storage projects have benefited from President Joe Biden's Inflation Reduction Act passed in 2022. Now there is concern Donald Trump could undo some of the tax breaks and pivot back to supporting fossil fuel production if he wins November's election.
"With conventional energy having its own bull run, I think the alternative funds will struggle for the foreseeable future, and we shall see what the election brings, "said Matt Willer, managing director of capital markets at Phoenix Capital Group Holdings.
(Reuters - Reporting By Patturaja Murugaboopathy; Editing by Vidya Ranganathan and Tomasz Janowski)