When BlackRock raised $5.1bn (£4bn) for its Global Energy & Power Infrastructure Fund launch back in April – along the way, exceeding both the original $3.5bn target and original $4.5bn hard cap – it assured its investors that coal generators would not see any of this money. Instead, the fund’s managers would be targeting businesses connected with “renewable energy (solar, wind, hydro and waste-to-energy) and… natural gas”.
BlackRock’s environmental efforts are part of a broader trend. No fewer than 479 green bonds were issued globally in 2019 – up by a quarter from 2018, according to data published by Linklaters. With technological advances also lowering the cost of renewables, green stocks are attracting far greater interest from investors than even five years ago.
For both moral and financial reasons, investors are flocking to wind and solar farms, regarding them as a vital first step on the way to an economic future that cannot afford to be anything other than a vibrant shade of green.
Nevertheless, one potential source is being excluded from the growing enthusiasm for clean energy and that is nuclear power. Although UK prime minister Boris Johnson’s government views nuclear energy as essential to achieving carbon neutrality by 2050, it is regularly overlooked by investors – indeed, in the promotional literature for the above BlackRock fund launch, you will struggle to find a mention of nuclear plants.
As such, it is difficult to finance new projects without onerous state expenditure or reliance on geopolitical adversaries such as China. Construction delays and budget overruns attending the building of new nuclear reactors at Hinkley Point have led some within government to reconsider plans for the same reactors at the Sizewell C nuclear plant in Suffolk.
See also: – Will fossil fuel write-downs speed up the switch to greener energy?
Dearth of private sector enthusiasm
The government is expected to announce its decision in the coming weeks, but one thing seems clear – spiralling costs combined with a dearth of private sector enthusiasm are conspiring against the “nuclear renaissance” Johnson championed in his first address as Prime Minister to the House of Commons.
This also fits with a broader trend – though this time a downward one. Michael Shellenberger, founder of clean energy advocacy group Environmental Progress, points to research showing global nuclear energy capability has declined 7% from its high-point in the 1990s. As new wind turbines go up and more land is cleared for solar developments, nuclear power stations are suffering a slow death. Even France, the world’s nuclear energy powerhouse, intends to close 14 of its reactors by 2035.
The denouement of nuclear seems all but inevitable, even as it remains one of the most efficient sources of clean energy in the world. Nuclear power produces a lower quantity of toxic waste than carbon and solar – 60 years-worth of US atomic waste would fit into one Walmart.
Nuclear power also boasts a stronger capacity to cost ratio – as Shellenberger argued last year in this Forbes column, “solar farms require hundreds of times more land, an order of magnitude more mining for materials, and create hundreds of times more waste, than do nuclear plants” Still less appreciated is the fact that nuclear plants emit four times less carbon pollution than solar farms, according to the IPCC’s 2014 report.
So why is nuclear potential not being embraced by asset management firms as an ESG priority? What is stopping the combination of its low carbon footprint and capacity to power economies efficiently being seen as an obvious answer to countries’ sustainable energy needs?
Consequences of mismanagement
Morningstar ESG analyst Elizabeth Stuart is quick to point out that “global warming is rightly a hot topic, but we should not forget there are other environmental priorities besides climate change”. Even if waste from the nuclear fuel cycle is relatively small, Stuart says, the consequences of mismanaging that waste are potentially deadly.
As UKSIF’s communications and campaigns director Charlene Cranny explains: “It can sit around in leaky containers for decades, emitting radiation that puts humans and the environment – land, water and biodiversity in general – at risk in ways that cannot easily be reversed or cleaned up.”
Then there is the additional point that nuclear power advocates face a unique marketing problem, due to high-profile disasters such as Chernobyl and Fukushima, as well as the fact that the word ‘nuclear’ immediately throws up images of apocalyptic mushroom clouds.
Or as Stuart puts it: “From a PR standpoint, nuclear just sounds scary.” In the end, she suggests, ESG-conscious investors have a tough time overlooking “the association of ‘nuclear’ with war and weapons, and the creation of multi-generational waste that contaminates the water table with lethal radioactive substances and pollutes natural habitats”.
Given the difficulties of scaling alternative energy sources such as wind and solar, however, it seems likely nuclear energy will still have to be included in the mix if policymakers in the UK and across Europe are to achieve their target of net zero carbon emissions by 2050.
“To keep temperature rises to well below 2°C, most energy scenarios require at least today’s level of nuclear power, if not more,” says Federated Hermes head of stewardship Bruce Duguid. “Given the increasing competitiveness of renewables, extending the life of existing plants is the most obvious priority. As the tragedy of Fukushima vividly demonstrated, however, it is vital that nuclear power is safe, and this is where we put the emphasis in our engagement with utilities companies.”
‘Generation IV’ tech
So-called ‘Generation IV’ nuclear technology may prove a useful way of balancing targets to decarbonise our economies by 2050 with safety concerns around radioactive waste. In much the same way that directing money into renewables research and development is expected to transform wind and solar into integral parts of our electricity grids, similar investment in nuclear technological innovation could serve to assuage fears around onsite safety and biohazardous pollution.
That is a view shared by Christopher Barnard, founder of the British Conservation Alliance, and now national policy director to the American Conservation Coalition. “Many of the typical concerns associated with nuclear power, such as waste or safety, are being solved by new generation nuclear designs,” he says. “Passive safety systems, recyclable waste, and more innovative designs, make fourth-generation nuclear an attractive sustainable investment.”
As an example, Barnard picks out Terrestrial Energy, the Canadian developer of a molten salt reactor, which, by replacing water with molten salt as the coolant, aspires to abolish the possibility of steam explosions and the creation of flammable hydrogen gas. In a similar vein, he also notes attempts, led by Bill Gates’s start-up TerraPower, to develop nuclear plants capable of recycling their own waste as fuel, eliminating the risk of radioactive leakage as a result of mismanagement.
“Increasingly, the largest obstacle to nuclear is not logistical, but emotional, yet that too is changing,” Barnard adds. “Our polling shows that nearly 90% of young people have a positive view of nuclear power. It is our view that nuclear – especially fourth-generation nuclear – is the future, not the past.”
Given the very high costs involved with nuclear, alongside the geopolitical concerns associated with outsourcing to regimes such as China, private investors will have to play a role if there is to be any nuclear renaissance that is both safe and environmentally sustainable.
At the same time, governments around the globe must decide whether the promise of efficiently generated, low-carbon nuclear energy takes precedence over the potential costs of incompetent oversight. Balancing these competing ESG risks is no easy prospect but it is not just a task for the world’s politicians – asset managers must not shy away from the challenge either.
