Export file:


  • RIS(for EndNote,Reference Manager,ProCite)
  • BibTex
  • Text


  • Citation Only
  • Citation and Abstract

Do clean energy (equity) investments add value to a portfolio?

1 Stanford University, Stanford, USA
2 Divjot Singh, Climate Policy Initiative, Delhi, India

Special Issues: Energy Finance

Investment in renewable energy needs to increase significantly to address climate change. Large institutional investors with huge asset bases, such as pension funds, mutual funds, insurance companies, and sovereign wealth funds, can be a prime potential source of capital for renewable energy. One way to ensure increased investment commitment from such investors is for them to treat clean energy as a separate asset class in their portfolios. Through this paper, our aim is to present initial insights into the potential effect the addition of clean energy listed equity as a separate asset class can have on existing portfolios. We focus on the value of listed renewable energy equity in a static portfolio optimization problem. Our main finding is that treating renewable energy listed equity as a separate asset class within an investor’s portfolio does not appear to add value to that portfolio. On one hand, this may reflect the need for applying more sophisticated techniques to show value. On the other hand, it may also imply that governments, policy makers, and regulators must keep working to ensure the clean energy sector is conducive to mainstream investment.
  Article Metrics


1. Bianchi RJ, Bornholt G, Drew ME, et al. (2014) Long-term U.S. Infrastructure Returns and Portfolio Selection. J Bank Finance 42: 314–325.

2. Bird R, Liem H, Thorp S (2014) Infrastructure: Real Assets and Real Returns. Eur Financ Manag 20: 802–824.    

3. BlackRock (2014) Alternatives and Liquidity: Incorporating Liquidity Constraints into Portfolio Construction. Available from: https://www.blackrock.com/institutions/en-zz/literature/publication/investment-insights-incorporating-liquidity-constraints.pdf.

4. Blake D, Lehman B, Timmerman A (2015) Asset Allocation Dynamics and Pension Fund Performance. J Bus 72: 429–461.

5. Blanc-Brude F, Whittaker T, Wilde S (2017) Searching for a Listed Infrastructure Asset Class using Mean Variance Sampling. Financ Mark Portf Manage 31: 137–179.    

6. Cherewyk P (2018) Calculating Covariance for Stocks. Available from: https://www.investopedia.com/articles/financial-theory/11/calculating-covariance.asp.

7. Credit Suisse (2010) Can Infrastructure Investing Enhance Portfolio Efficiency? Available from: https://www.creditsuisse.com/pwp/am/downloads/marketing/infrastructure_ch_uk_lux_ita_scandinavia.pdf.

8. Cremers KJM (2013) The Performance of Direct Investments in Real Assets: Natural Resources, Infrastructure and Real Assets.

9. Damodaran A (2018) Estimating Risk Parameters.

10. Davidow A (2018) Why Global Diversification Matters. Available from: https://www.schwab.com/resource-center/insights/content/why-global-diversification-matters.

11. Deutsche Bank (2011) Get FIT Plus, De-Risking Clean Energy Business Models in a Developing Country Context. Available from: https://www.db.com/cr/en/docs/GET_FiT_Plus_Studie_der_Deutsche_Bank_Climate_Change_Advisors_(en).pdf.

12. Deutsche Bank (2012) Investment Markets and Strategic Asset Allocation: Broadening and Diversifying the Approach. Available from: https://www.db.com/cr/en/docs/Inv_in_CC_2012.pdf .

13. Deutsche Bank (2013) The Performance of Direct Investments in Real Assets: Natural Resources, Infrastructure, and Commercial Real Estate.

14. Dowell G, Hart S, Yeung B (2000) Do Corporate Environmental Standards Create or Destroy Market Value. Manage Sci 46: 1059–1074.    

15. EDHEC (2018) Unlisted Infrastructure Asset-Pricing Methodology. Available from: http://edhec.infrastructure.institute/wp-content/uploads/documents/documentation/asset_pricing.pdf .

16. Filbeck G, Gorman RF (2004) The relationship between the environmental and financial performance of public utilities. Environ Resour Econ 29: 137–157.    

17. Fulton MB, Kahn M, Sharples C (2012) Sustainable Investing: Establishing long-term value and performance. Available from: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2222740.

18. IEA (2016) World Energy Outlook. Available from: https://www.iea.org/newsroom/news/2016/november/world-energy-outlook-2016.html.

19. Hart SL, Ahuja G (1996) Does it pay to be green? An empirical examination of the relationship between emission reduction and firm performance. Bus strategy Environ 5: 30–37.

20. Idzorek T, Armstrong C (2009) Infrastructure and Strategic Asset Allocation: Is Infrastructure an Asset Class? Tech Rep Ibbotson Associates.

21. Investopedia (2018) Mean-Variance Analysis. Available from: https://www.investopedia.com/terms/m/meanvariance-analysis.asp.

22. IVG research (2012) The importance of infrastructure asset class in multi-asset portfolio. Available from: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1992520.

23. King RG, Plosser CI, Rebelo ST (2002) Production, Growth and Business Cycles: Technical Appendix. Comput Econ 20: 87–116.    

24. Lioudis N (2017) Sharpe Ratio. Available from: https://www.investopedia.com/articles/07/sharpe_ratio.asp.

25. Little K (2017) Common Asset Classes in Portfolio. Available from: https://www.thebalance.com/use-all-four-asset-classes-to-build-your-portfolio-3141071.

26. Margolis JD, Hillary EA, Walsh JR (2009) Does It Pay To Be Good? A Meta-Analysis and Redirection of Research on the Relationship between Corporate Social and Financial Performance. MIT Sloan Manage Rev 50:61–68.

27. Mercer (2009) Shedding Light on Responsible Investment: Approaches, Returns and Impacts. Mercer report.

28. Markowitz HM (1952) Portfolio Selection. J Financ 7: 77–91.

29. Muller S (2005) Constrained Portfolio Optimization. University of St. Gallen.

30. Merton R (1972) An Analytical Derivation of the Efficient Frontier. J Financ Q Anal 7: 1851–1872.    

31. Monaca SL, Assereto M, Byrne J (2018) Clean Energy Investing in Public Capital Markets: Portfolio Benefits of YieldCos. Energy Policy 121: 383–393.    

32. Newell G, Peng HW, De Francesco A (2011) The Performance of Unlisted Infrastructure in Investment Portfolios. J Prop Res 1: 59–74.

33. Obaidullah J (2018) Portfolio Standard Deviation.

34. Orlitzky M, Schmidt FL, Rynes SL (2003) Corporate Social and Financial Performance: A Meta-Analysis. Organ Stud 24: 403–441.    

35. Reicher D, Brown J, Fedor D, et al. (2017) Derisking Decarbonization: Making Green Energy Investments Blue Chip.

36. Roberedo J, Quintela M, Otero L (2017) Do Investors Pay a Premium for Going Green? Evidence from Alternative Mutual Funds. Renew Sustain Energy Rev 73: 512–520.

37. Rosenthal JL (2006) Portfolio Theory.

38. Rothballer C, Kaserer C (2012) The Risk Profile of Infrastructure Investments: Challenging Conventional Wisdom. J Struct Finance 18: 95–109.    

39. Russo MV, Fouts PA (1997) A Resource-Based Perspective on Corporate Environmental Performance and Profitability Auth. Academy Manage J 40: 534–559.

40. Sanzilo T, Chung Y, Buckley T (2017) Making the case for Norwegian Sovereign Wealth Fund Investment in Renewable Energy Infrastructure; Institute for Energy Economics and Financial Analysis.

41. S&P Indices (2018) Available from: https://us.spindices.com/indices/equity/sp-global-clean-energy-index.

42. Smirnov Y (2018) Standard Deviation of Portfolio.

43. Telle K (2006) It Pays to be Green A Premature Conclusion. Environ Resour Econ 35: 195–220.    

44. Wikipedia (2018) Variance-Covariance Matrix. Available from: https://en.wikipedia.org/wiki/Covariance_matrix.

45. Wright C (2012a) How to build a variance-covariance matrix? Available from: https://www.youtube.com/watch?v=ZfJW3ol2FbA.

46. Wright C (2012b) How to perform mean variance optimization on Excel? Available from: https://www.youtube.com/watch?v=FZyAXP4syD8.

47. Ziegler A, Seijas Nogareda J (2009) Environmental management systems and technological environmental innovations: Exploring the causal relationship. Res Policy 38: 885–893.    

© 2019 the Author(s), licensee AIMS Press. This is an open access article distributed under the terms of the Creative Commons Attribution Licese (http://creativecommons.org/licenses/by/4.0)

Download full text in PDF

Export Citation

Article outline

Show full outline
Copyright © AIMS Press All Rights Reserved