PwC, in conjunction with the International Forum for Sovereign Wealth Funds (IFSWF) and One Planet Sovereign Wealth Fund Network (OPSWF), has just launched its new report on sovereign wealth funds and the green energy transition, exploring the role of long-term investors.

Although long-term investors such as sovereign wealth funds are supporting global energy transition, the amount of financing they allocate to this area, particularly in bridging the energy-infrastructure gap, still falls short of what is required, a new report says.

The findings are from a study by PwC, the International Forum for Sovereign Wealth Funds (IFSWF) and One Planet Sovereign Wealth Fund Network (OPSWF).

In some way, sovereign wealth funds (SWFs) are similar to large family offices in terms of how they are supposed to invest for future generations and act as custodians of wealth, often requiring a particular approach to investing and risk. SWFs are state-backed and controlled entities, yet they have (some) similar characteristics of large family offices. See more commentary here. 

The report shows that SWFs are increasingly paying attention to climate-related risks and opportunities within their portfolios. Some 34.5 per cent have assessed the carbon footprint of their whole investment portfolio, while 41.4 per cent are doing so.  

In particular, they are investing in the green energy transition, with renewable energies topping climate investment priorities; $5 billion were put into renewable energies in 2023 up from $3 billion in 2022. Investments in electric vehicles and batteries also shot up to $2.78 billion from negligible amounts in 2022, the report said.

The report also shows that global private investments into the infrastructure underpinning the energy transition increased more than eightfold between 2010 and 2023, from $73 billion to $604 billion. 

However, while SWFs are spending more on this transition, there's an overall global shortfall in funding. In 2023, only 0.4 per cent ($2.9 billion out of $729 billion) of global investments into energy transition infrastructure came from SWFs and pension protection funds (PPFs), the report said. Some $236 billion, out of $1.7 trillion, in energy transition-related investments in 2023 went to emerging markets and developed economies.  

Nevertheless, with their long-term investment horizon and ability to de-risk projects in emerging economies, long-term investors are well positioned to attract additional private investors and bridge the financing gap.

The report said there is a pressing need for more coordinated and substantial funding efforts. Public–private collaboration, alongside innovative financing mechanisms, will be essential for mobilising resources and driving the energy transition effectively. 

The alignment of long-term investors’ investment strategies with international climate goals can also set a precedent for other financial institutions, encouraging them to prioritise environmental sustainability in their portfolios. This agreement can help maintain the momentum of the global energy transition, especially in regions where private investment is hesitant due to perceived risks. 

The social and economic benefits of investments in the energy transition should also not be overlooked, the report said. Funding energy-transition projects can contribute to job creation, technological advancements and improved energy security. The role of long-term investors therefore extends beyond financial support. These institutions are essential for driving transformation towards a sustainable and equitable global energy landscape, the report states.

The International Forum of Sovereign Wealth Funds is a global network of sovereign wealth funds while the One Planet Sovereign Wealth Fund network was launched as a working group of five founding sovereign wealth funds. It has since expanded to include private investors and asset managers, with plans to become a permanent network and incorporate as an association under French law.