research@hec - Issue #34 - (Page 6)

responsible investment research hec Renewable energies in Europe A priori beliefs and institutional pressure hinder investments Even though renewable energies are increasingly considered the energy sources of the future and continue to receive significant public support, their share in investment portfolios remains small. Andrea Masini and Emanuela Menichetti investigate the nonfinancial factors that hold private investors back. Andrea Masini B iography Andrea Masini has been a member of the HEC Paris Operations Management and Information Technology department since 2010. His research focuses on the operational and organizational impact of technological innovation, with particular attention to renewable energies, humanitarian operations, and sustainable development. He also focuses on operations In 2008, the International Energy Agency (IEA) called for an “energy technology revolution” in order to cut energy-related carbon dioxide emissions in half by 2050. But for this objective to be achieved, the IEA estimates that the contribution of renewable energies to primary energy supply must exceed 50%. Renewable energy technologies continue to account for only a small fraction of the world’s supply, in spite of their many environmental, economic, and social advantages, as well as the support they receive from various governments. One possible cause for this limited diffusion is that, while the transition towards a low-carbon economy requires important, potentially appealing investments, private finance has so far played a relatively marginal role in this industry. “I started working on renewable energies more than 15 years ago,” says Andrea Masini. “I chose to study investments in renewables because I realized over time that the lack of appropriate financing is one of the reasons why these technologies do not diffuse to the extent we expect and need them to.” excellence in service and production activities. 6 AN INCOMPLETE UNDERSTANDING OF INVESTORS Securing the huge additional investments needed to achieve the proposed reduction targets is par- • August-September 2013 ticularly challenging in a context of global economic uncertainty. Still, dedicated policies have been implemented to stimulate investors, who can play a key role in mobilizing capital to support renewable energy technologies. “Many of the efforts conducted so far have been only moderately effective because, by failing to understand the behavioral context in which investors make decisions, they have been unable to leverage some key drivers of the investment process,” explains Masini. That is why in addition to a rational evaluation of the investment opportunities, Masini and Menichetti drew upon studies in behavioral finance and institutional theory to examine how a number of non-financial factors affect investor decisions. NON-FINANCIAL FACTORS FAVOR THE STATUS QUO Their results shed new light on the role of nonfinancial factors in determining the share of renewable energy technologies in energy portfolios, with important implications for both investors and policy-makers. They suggest these technologies still suffer from a series of biased perceptions and preconceptions that favor status quo energy production models over innovative alternatives. “Our analysis has revealed that a priori beliefs on

Table of Contents for the Digital Edition of research@hec - Issue #34

Cover & Contents
Reality TV: What is the legal status of participants?
Audit fees: What is the influence of shareholders?
Renewable energies in Europe: A priori beliefs and institutional pressure hinder investments

research@hec - Issue #34