The industry fund has taken a 49 per cent stake in subscription vehicle provider Splend alongside IFM and other co-investors as it looks to build a 10 per cent exposure to climate solutions in its global portfolio.
After years of powering super returns into the double digits, US equities are walking a tightrope, and one misstep could send them plunging to earth. But the story that put them up there in the first place still holds true.
‘We can’t blow up our own mandate’: caution needed on transition
The recent surge in demand for fossil fuels doesn’t mean the green energy revolution is dead. But investors need to proceed with caution lest they lose their mandate to manage the transition.
There are two schools of thought on what Russia’s invasion of Ukraine means for fossil fuel production and consumption. Either it will hasten the transition to green energy as countries are confronted with a burning need to wean themselves off fossil fuels; or it will make countries even more dependent on fossil fuels as they race to meet the energy shortfall.
Those in the former school point to evidence from Poland and China, which are lifting their coal production. Germany has also jumped back on the fossil fuel train after years of talking up green energy. But Macquarie CEO Shemara Wikramanayake believes that it’s “not a binary situation” and that while countries are “grabbing what they can, quickly, to respond to energy scarcity”, the long-term trend remains intact.
“We are going to have a pick-up in fossil fuel energy, but it’s in parallel pushing the journey to renewables along,” Wikramanayake told the ASFA Conference on Wednesday (27 April). “There will be speedbumps like this along the road; we need to think about the whole of community issues in terms of how we can keep adapting and modifying that journey.”
Fossil fuels currently comprise 80 per cent of energy in the world, and Wikramanayake believes investors “need to be realistic” in understanding that production can’t simply be switched off. Even with a trillion dollars of investment in green energy since 2016, the world is “still not keeping up with growth in (energy) demand” – particularly in emerging and developing economies that are still trying to lift living standards, despite admonishments from their more developed peers.
Wikramanayake warns: “If we end up creating energy scarcity, we could lose the mandate on a transition.”
Key questions also remain about the complexities of running the assets themselves. Monopolistic energy infrastructure comes with the problem that it is monopolistic, and so requires the owner to understand community and regulatory expectations around it or risk losing the social licence to operate.
“There’s huge cost involved and great efficiency in having just one player or a small number of players,” Wikramanayake said. “But with that comes the risk that people can exploit the monopoly and overcharge. Often they put in place regulatory frameworks to control you in terms of not exploiting it but also to attract new investment. If they make the returns too low, you’re not going to put in new investment.”
“We’ve owned water utilities where you need to be investing in the pipes… If there aren’t the regulatory regimes, we as responsible owners need to be putting that discipline on ourselves, because that licence to operate is critical. You’ve got to be thinking: am I delivering good return for the customer?”
Photo: Jeremy Veitch
