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PE firms speed up transition from fossil fuel assets to renewables, says new report

Private equity firms are expected to rapidly accelerate their divestment from fossil fuel assets over the next 12 months in response to a tightening regulatory climate and increased demand from institutional investors to pivot to renewable energy assets.

That’s according to a new study by Auxadi, a provider of accounting, tax and payroll services to private equity and real estate fund managers and multinationals. The research ‘Private Equity: navigating challenges and opportunities in the new geopolitical climate’, was based on interviews with 100 senior-level private equity investors based in the UK, Continental Europe and North America with average assets under management of €14.4 billion.
The research shows that over four-in-ten GPs (43%) say they plan to begin disposing of all their carbon assets in the next 12 months, while almost a third (31%) claim to have already done so. Just 8% believe it will take more than a decade.
On average, private equity firms expect it will take three years and eight months to be fully divested with North American GPs taking four and a half years and European firms just seventeen months.
The urgency with which GPs are reducing their exposure to fossil fuel is matched by their appetite for acquiring renewable energy assets. Last year saw an estimated $21.5 billion2 invested in the US renewable energy sector alone – an increase on the $7.3 billion recorded in 2019.

Nearly all (92%) respondents said the outlook for private equity funds investing in renewable energy is either very positive or positive and over the next five years, 95% plan to invest in wind and solar assets, 83% in hydro, 82% in biomass, wave (77%) and marine (75%). 
According to the study, the biggest drivers behind private equity’s growing appetite for renewables are pandemic-driven government commitments to infrastructure (67%), climate change risks (62%) and the falling costs of building renewable assets (54%).

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