ESG investors warm to nuclear power

IFR 2439 - 25 Jun 2022 - 01 Jul 2022
4 min read
EMEA, Asia
Tessa Walsh

Increasing use of the European Union's Taxonomy is changing investors’ attitudes towards nuclear power. Its inclusion in the taxonomy, as well as the war in Ukraine, has made the sector a more acceptable source of clean energy, according to research by Natixis.

Appetite is increasing as more investors use the EU Taxonomy to identify sustainable investments and define exclusion thresholds. At the same time the debate has been intensifying about the EU's energy independence.

"The Ukraine war and the debate around energy dependency and sovereignty has definitely reshuffled the cards, and more investors are now more flexible on nuclear energy," said Thomas Girard, head of the green and sustainable syndicate at Natixis.

Under Europe’s Sustainable Finance Disclosure Regulation, funds have to be labelled either Article 8, which promotes environmental or sustainable characteristics; Article 9, which has sustainable investment as its objective; or Article 6, which has no sustainability objective.

Article 8 and 9 funds’ assets reached US$4.5trn in December 2021, which made up 42.4% of EU assets under management. Nuclear energy investments of US$52.9bn currently make up around 1.2% of Article 8 and 9 funds’ assets, according to Morningstar.

While nuclear is increasingly being seen as a transition energy, it is not considered a "dark green" source of energy due to ongoing concerns about waste disposal, safety, weapons proliferation and accidental radiation.

"Investors managing Article 9 funds are reluctant to invest in the nuclear sector because they want to be seen as 'dark green' in order to avoid any potential risk of reputation and greenwashing,” Girard said. “Investors managing Article 8 funds seem to be open to investment in the nuclear sector because they are putting the fight against global warming as a priority.”

Scarce commodity

While some nuclear companies have issued green bonds to finance renewable energy, they remain scarce with the exception of Canada’s Bruce Power. It issued the first green bonds to fund nuclear power last November.

UK nuclear power plant operator Sizewell C is preparing to raise ESG-labelled debt to fund part of the £15bn cost of the UK’s new generation nuclear reactor in early 2023. Other ESG bond formats, including a social or sustainable bonds, are also possible.

“I think we are likely to see more sustainable investors investing in the nuclear sector in ESG-labelled deals,” Girard said.

The inclusion of nuclear in the EU Taxonomy is encouraging more "medium green" investors to back the sector, with the exception of countries such as Germany, Austria and Switzerland that remain strongly opposed to nuclear.

The EU’s Taxonomy complementary climate delegated act on climate change mitigation and adaptation covering nuclear and gas activities was introduced in March and is due to come into force on January 1 2023 unless a majority of the 705 members of the European Parliament formally vote against it in the week beginning July 4.

The European Parliament’s Economic and Monetary Affairs Committee and the Environment, Public Health and Food Safety Committee both voted against the inclusion of nuclear and gas in mid-June. That means that the final vote is by no means a foregone conclusion.

"It's not the full parliament, but it sends a strong message to members of parliament to vote against the inclusion [of nuclear]," said Gratien Davasse, a green and sustainable finance expert at Natixis.

“The science is clear,” Girard said. “Every low carbon source of energy is needed to achieve net zero.”