ESG Financing – A Case for Nuclear Energy?

As the world’s population continues to grow, so does the need for power generation. In recent years, there has been an increase in global consciousness of how power generation affects the environment, with attempts made to curb any negative impact. Over 110 countries have set sustainability goals and pledged to be carbon neutral by 2050. This growing trend has resulted in a greater focus on the environmental awareness and sustainability practices of companies, and environmental, social, and governance (ESG) criteria are an increasingly popular way for investors to evaluate companies in which they might want to invest.

When considering power generation, nuclear energy is arguably one of the cleanest and most efficient sources of energy, and has the potential to contribute significantly towards providing a sustainable, scalable, and relatively economical option to meet the growing global energy demand. However, when considering alternative energy sources and ESG investment, such as wind and solar, nuclear energy is often singled out and seldom included in such discussions.

For example, when the investment management firm BlackRock raised $5.1bn in 2020 for its Global Energy & Power Infrastructure Fund, BlackRock assured its investors it would move away from coal and invest in businesses predominantly connected with renewable energies. However, none of the promotional material referenced nuclear.

So, why is nuclear energy being excluded from discussions of ESG, and why isn’t it a top priority for ESG financing?

Why ESG matters

Before looking into the merits of nuclear energy with respect to ESG criteria, we should step back to consider just how much emphasis is placed by investors on ESG factors when evaluating a potential investment. 

Research by BlackRock in 2020 found that companies with better ESG profiles outperformed their peers. The reason being that, by connecting to key stakeholders (i.e. shareholders, employees, customers, and the communities in which they operate), establishing trust with them and acting with purpose, companies with ESG policies responded better to changes in the world. BlackRock found that companies that do not establish such trust will continue to lose clients, especially as younger customers increasingly expect companies to reflect their values.

Therefore, how nuclear power projects are considered in investors’ ESG assessment is paramount to understanding its place in the power market going forward.

How Nuclear Compares to Other Forms of Energy When Considering ESG

Nuclear energy satisfies a number of important ESG criteria:

• Nuclear energy outperforms many other low carbon forms of energy because nuclear power plants produce carbon-free electricity 24/7 and produces low quantities of toxic waste. Additionally, significantly more land is required for a solar or wind park than is required for a nuclear plant.
• Nuclear power plants require less materials than other low carbon forms of energy, thereby lowering their lifecycle environmental impact.
• Nuclear energy is a demonstrably safe form of energy with one of the lowest death rates when compared to the mortality rates from other energy sources.
• Nuclear waste is fully accounted for and its costs are considered as part of the development of a nuclear energy project.
• The nuclear power industry is one of the most highly regulated industries globally, with worker safety and local community impact continuously considered throughout the lifecycle of a nuclear power plant.
• The construction and operation of nuclear power plants requires highly educated and trained employees, increasing the pool of highly skilled workforce from which other economic sectors will benefit from as well.
• Staff engaged in the nuclear power sector have long-term job prospects and comparative job stability.

Despite the above, the potential for nuclear accidents—a very low probability but one with potentially high impact—and the long-term disposal of nuclear waste are the most commonly cited issues with respect to nuclear’s ESG assessment. Adding to these, the very long life cycle of a nuclear power plant (and its impact) compared to other forms of energy makes a long-term ESG assessment even more challenging.

Nevertheless, the very low carbon footprint of nuclear energy compared to other energy sources makes it a critical contributor to meeting global environmental policy goals.  Nuclear energy’s ability to deliver substantial amounts of carbon-free power as well as energy for other applications such as district heat, desalination and hydrogen production makes nuclear energy a necessary tool to reach net zero emissions of greenhouse gases by 2050.  In addition, nuclear energy has demonstrated its ability to help develop economic and society-wide benefits in terms of infrastructure. A skilled and educated workforce with high-paying local jobs make an even stronger case for investors to reassess nuclear energy’s ESG assessment. This may be of particular importance to the developing needs of many African countries which are facing power shortages, a lack of easily accessible drinking water, and limited high-skilled, high-paying employment opportunities.