Nuclear: An Investible ESG Asset


December 14, 2022

As the world responds to rapid changes across economic, social, environmental, geopolitical, and COVID-19 landscapes, many investors and companies are increasingly incorporating ESG—environmental, social, and governance—considerations into their business and investment decisions. Although commercial nuclear power plants have played an important role in the global economy since the Eisenhower administration’s “Atoms for Peace” initiative, the acknowledgement of nuclear energy as an investible asset is a fairly recent shift.

Global players are now embracing nuclear energy as an ideal pathway to meeting ESG goals while also providing the electricity and ancillary services necessary to support global development objectives.

As the energy transition continues, companies looking at ESG investments should recognize the contributions that both the existing fleet of large light-water reactors and the upcoming deployment of “next generation” reactors—small modular reactors (SMRs), advanced (non-light water) reactors, and microreactors—can bring to the ESG landscape.

ESG Overview

Investment in ESG has skyrocketed in recent years, driven partly by a “bottom up” approach for more sustainable practices causing individual and institutional investors to direct an increasing proportion of their portfolios toward sustainable investments.

Although the specific definitions and weighting of components may vary widely, ESG generally refers to nonfinancial criteria used by investors when screening their investments to encourage more sustainable and thoughtful outcomes. Environmental factors may include carbon emissions and their impact on humans’ physical health and well-being. Social considerations may cover employment or diversity and inclusion measures. And governance assessments may look at procedures an industry or company utilizes to maintain safety or efficiency.

Using this type of framework can help identify potential investments with positive ESG-aligned attributes, thereby improving access to and decreasing the cost of capital for those investments. While investors may make investment decisions based on subjective, self-identified ESG criteria, a growing industry of ESG rating agencies are endeavoring to objectively quantify these factors by reviewing a company’s performance based on ESG policies and providing standardized ratings that allow side-by-side comparisons.

Recent Acknowledgment of Nuclear Energy’s ESG Strengths

The first commercial nuclear reactor in the world, the Shippingport Atomic Power Station in Pennsylvania, put its first electron into the grid on December 18, 1957. Since that time, the commercial nuclear industry has operated in much the same manner, safely and reliably generating large amounts of carbon-free electricity at high energy densities. The existing fleet of power reactors have relatively small footprints in exurban areas, employ large groups of highly trained and educated workers, and generate small amounts of waste with very low rates of workplace injuries.

Prior to ESG coming to the forefront of investment decisions, the nuclear industry’s strong performance record largely went unnoticed. But a recent report by the Center for ESG and Sustainability, in partnership with Columbia University’s International Research Institute for Climate and Society, emphasizes that, when viewed through an ESG lens, the nuclear industry is a very high performer. The report emphasizes that nuclear power is remarkably efficient and reliable and can deliver consistent baseload power with relatively stable pricing due to long-term fuel supply contracts.

On the environmental performance front, nuclear power’s energy density and “best in class” performance concerning lifecycle land use are already well known. Nuclear power has essentially no carbon emissions at the point of generation, low water consumption, and a proven ability to safely store waste. The report also highlights technological advances and policy changes likely to reduce nuclear waste streams.

Regarding social performance standards, nuclear’s resiliency during natural disasters and overall reliability make it a “critical backbone of the nation’s baseload electricity supply,” providing affordable energy at a consistent price. Nuclear power’s safety record is also unparalleled in the energy industry.

Regarding governance standards, the nuclear industry offers some of the highest-paid wage earners across the energy industry. The industry also is “a top performer for gender, race, and age diversity as compared to other electricity and fuel technologies.” These factors may contribute to the “highly positive” attitudes toward nuclear power from those who live closest to nuclear power generation facilities.

Moreover, ESG factors heavily into what the report terms the current “energy trilemma”: how to meet reliability, affordability, and sustainability goals in power generation. Recent geopolitical developments, weather-related events, and grid reliability have underscored this importance. The report outlines the nuclear industry’s unique position in solving this trilemma and how the industry is readily equipped to do so in an ESG-friendly fashion.

Momentum for Nuclear (and ESG)

With more countries announcing net-zero carbon pledges, many are coming to understand that nuclear energy is important to helping countries decarbonize electricity while also increasing energy security.

In July 2022, the European Union voted to formally include nuclear power in its EU Taxonomy, opening the floodgates for “green bonds”—a fixed-income instrument provided to climate-friendly projects—for nuclear in Europe. Canada’s Ontario Power Generation (OPG) added nuclear to its green bond framework, and is seeking to deploy the world’s first SMR at its Darlington site. Likewise, South Korea included nuclear in its K-Taxonomy draft.

In the United States, the recently passed Inflation Reduction Act also contains many provisions supportive of nuclear, including a production tax credit to help preserve the existing fleet of nuclear plants, transferrable investment tax credits that are expected to bolster new reactor activities, and millions in government funding to further develop domestic uranium processing capabilities in the United States. At least three companies have already announced plans to deploy SMRs at sites in the United States by the end of this decade, and a recent Nuclear Energy Institute survey of chief nuclear officers found that they plan to deploy roughly 300 new SMRs in the United States by 2050.

Financial institutions have similarly recognized nuclear is an investible asset, even absent ESG considerations. Morgan Stanley recently termed nuclear energy a “safe, reliable, and carbon-free source of energy.” Brookfield Asset Management, one of the world's largest alternative investment management companies, published a white paper analyzing the global trends toward nuclear energy, and recognized a “new dawn for nuclear power.”

With the increasing acknowledgement and appreciation of nuclear energy’s ESG bona fides, the industry is set to play a pivotal role in helping nations address the climate crisis, reduce energy poverty, and support the growing global economy.