Family offices are increasingly turning their attention to clean energy investments. This shift reflects not only a growing environmental consciousness but also the recognition of clean energy as a compelling investment opportunity. Family offices are increasingly incorporating sustainable practices into their investment strategies. Deloitte’s latest report shows a significant rise in sustainable investing participation, growing from 42% in 2021 to 46% in 2023. This trend is particularly strong in Europe, where family office engagement in sustainable investing jumped over the same period, compared to a decline in North America.
The same report explained that the average sustainable investor dedicates 17% of their assets to sustainable investments in 2023, with a projected increase to 29% within five years, reflecting a 71% growth. Clean energy emerges as the top sustainability priority for family offices. A survey revealed that nearly two-thirds of family offices prioritize affordable and clean energy within their sustainable investment goals. This focus on clean energy is strongest in Europe (76%) compared to Asia Pacific (48%) and North America (63%).
These data points highlight a growing commitment among family offices to integrate sustainability, particularly clean energy, within their investment strategies. This trend is expected to continue with a significant increase in sustainable investment allocation over the coming years.
Why Clean Energy is Appealing to Family Offices
Several factors are driving the rise of clean energy investments among family offices:
- Long-term Growth Potential: The clean energy sector is projected for significant growth in the coming decades. As countries transition towards renewable energy sources to combat climate change, demand for clean energy solutions will continue to rise. This presents a compelling opportunity for family offices seeking long-term returns for their wealth.
- Diversification: Clean energy offers a valuable diversification tool for family office portfolios traditionally dominated by stocks and bonds. The uncorrelated nature of clean energy returns with traditional asset classes adds a layer of resilience to investment portfolios.
- Impact Investing: Many families are motivated by a desire to make a positive social and environmental impact alongside financial returns. Clean energy investments directly contribute to sustainability goals, aligning with the values of a growing number of family offices.
- Favorable Policy Landscape: Governments around the world are increasingly implementing policies that incentivize clean energy development. This includes subsidies, tax breaks, and feed-in tariffs that make clean energy projects more attractive for investors.
Investment Strategies for Family Offices
Family offices have a multitude of options for participating in the clean energy sector, catering to different risk appetites and impact goals.
- Direct Investments
Family offices with significant resources and in-house energy expertise can directly invest in and own renewable energy projects like wind farms, solar parks, or geothermal plants. This approach offers potentially higher returns, as evidenced by a 2024 Clean Energy Finance report showing record high direct investments of $34 billion in the first half of 2024 by institutional investors (including family offices). However, it’s important to consider the significant risk associated with project-specific factors. In-depth due diligence and ongoing management expertise are crucial for success.
- Venture Capital and Private Equity
Family offices can gain exposure to the clean energy sector through venture capital and private equity investments. This approach allows them to invest in both cleantech startups and established clean energy companies, either by directly managing a venture capital portfolio or leveraging the expertise of dedicated clean energy funds. This strategy offers the potential for high returns, especially with early-stage ventures, as supported by the $87 billion invested globally in clean energy through venture capital and private equity in 2023 according to the Global Infrastructure Investor Association. However, it’s important to consider the longer investment horizon and higher risk involved compared to established companies. Additionally, expertise in evaluating cleantech companies is essential for making sound investment decisions
- Clean Energy Infrastructure Funds
Family offices seeking a more stable investment option within the clean energy sector can consider dedicated clean energy infrastructure funds. These funds focus on the crucial infrastructure that supports renewable energy generation and transmission, including power grids, battery storage facilities, and transmission lines. This approach is backed by a growing market, with a report by ESG Investor projecting the global clean energy infrastructure market to reach a staggering $1.2 trillion by 2030. While offering stability, it’s important to note that returns may be lower compared to direct investments in renewable energy projects or early-stage ventures.
- Impact Investing Funds
Family offices with a dual focus on financial gain and social impact can leverage impact investing funds dedicated to clean energy. These funds target clean energy solutions specifically designed to address the needs of developing countries or underserved communities, promoting energy access for those who lack it. This approach aligns with the growing impact investing market, which surpassed $800 billion globally in 2023 according to the Global Impact Investing Network, with clean energy being a major recipient of these investments. While impact investing allows families to contribute to positive social and environmental change alongside financial returns, it’s important to acknowledge the complexities of measuring impact, which can make it challenging to assess the full return on investment compared to traditional clean energy options.
Family offices have the potential to play a pivotal role in accelerating the clean energy transition. Their long-term investment horizons, patient capital, and focus on impact investing can provide much-needed stability and support for innovative clean energy solutions. As the clean energy sector continues to mature and offer compelling investment opportunities, we can expect family offices to remain at the forefront, driving positive change for the environment and generating sustainable returns for future generations.
