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Nuclear power classed as “amber”, not “green”. Is it officially accepted as Environmental, Social, and corporate Governance (ESG) ?

the Commission applies a number of screening and disclosure conditions to nuclear’s taxonomy inclusion. For instance, there are screens based on scientific advice such as requiring disposal facilities for low-level radioactive waste to already be operational, member states having a plan for high-level waste disposal by 2050 and a ban on exporting radioactive waste to developing countries for disposal.

Does the EU taxonomy vote mean nuclear is officially ESG? ETF Stream, By Jamie Gordon, 26 Sep 2022,

The implementation of the Delegated Act will test both the EU’s credibility and investors’ appetite to adhere to prescriptive ESG frameworks

The European Parliament took the contentious step in July of voting to include nuclear energy within its taxonomy of sustainable activities, however, it remains to be seen whether other ESG frameworks will follow suit and if any naysayer investors will be swayed by the regulator’s decision.

Almost three years after first being discussed, nuclear energy, along with natural gas, look set to be added to the EU’s taxonomy via the Complementary Climate Delegated Act from 1 January 2023, earmarking them as sustainable investments for the time being.

The road to this verdict was not only meandering but full of obstacles, with Kenneth Lamont, senior research analyst at Morningstar, previously describing nuclear as being “stony on a political level” for investors and policymakers.

It began with the European Commission’s Technical Expert Group publishing the Taxonomy Technical Report in March 2020, which notably snubbed nuclear from its list of green activities.

A year later, leaders of seven EU member states wrote a letter calling on the European Commission to accommodate all paths to climate neutrality while the Commission’s Joint Research Centre argued nuclear should be eligible for ESG investment.

Even though the Commission announced a month later it would bootstrap nuclear and gas to its taxonomy via a Delegated Act, in October, a ‘Nuclear Alliance’ of 15 European Ministers called for the energy source to be included in the main body of the taxonomy by the end of 2021.

Ignoring these calls, the Commission published a draft of the Delegated Act on 31 December, which was soon met by fierce opposition as Austria and Luxembourg threatened to bring a lawsuit before the European Court of Justice.

Despite members of the Environment and Economic Affairs committees later voting against the proposed taxonomy changes in June, the defeat of the motion to block the Delegated Act in the European Parliament in July means nuclear will soon make its delayed entry into the taxonomy.

Conditional inclusion

While the move is significant for challenging the nuclear exclusions applied to many ESG frameworks and products, it bears remembering the Commission’s Platform on Sustainable Finance views nuclear as an ‘amber’ rather than ‘green’ activity – and its inclusion in the taxonomy is both conditional and time-limited………………………………..

Despite nuclear’s seemingly low-carbon credentials, the European countries most active in building new plants – Ukraine, the UK and France – currently only have a combined five plants under construction versus 17 for China alone.

Similarly, 27 out of the 31 reactors that have been under construction since 2017 are of Russian or Chinese design, according to analysis by SocGen.

……………………………..  there are several compelling arguments against nuclear being in the taxonomy such as what to do with thousands of tonnes of radioactive waste, concerns around directing capital away from renewables and the worthwhile geopolitical point that in 2020, 20.2% of the EU’s uranium supply came from Russia and 19.2% from its ally, Kazakhstan, according to Eurostat.

It is also worth noting the size of political opposition to nuclear as a ‘transition energy’, with 278 of 639 MEPs opposing the Delegated Act in July’s motion.

Considering these points, the Commission applies a number of screening and disclosure conditions to nuclear’s taxonomy inclusion. For instance, there are screens based on scientific advice such as requiring disposal facilities for low-level radioactive waste to already be operational, member states having a plan for high-level waste disposal by 2050 and a ban on exporting radioactive waste to developing countries for disposal.

Also, large listed non-financial and financial companies will be required to disclose what portion of their activities are linked to the energies included in the Delegated Act.

Greater complexity across EU policy……………………………………………………………………..

The ultimate test, however, will be if taxonomy inclusion changes investor attitudes towards nuclear, given its aim is to act as a framework for guiding capital towards worthy recipients.

………………………………. Many index providers will remove nuclear power operators from their exclusion lists and will become more flexible in including utilities that generate power from nuclear facilities in their indices,” he added.

However, he warned others with their own internal rules and those fulfilling client mandates would be less likely to change their indices in fear of losing business.

FTSE Russell, for instance, continues to categorise nuclear as tier three under its Green Revenues Classification System, meaning it has some environmental benefit but this is overall net neutral or negative……………………………………

Some investors might also be put off by the fact the technical screening criteria of the Delegated Act will be reviewed every three years, which includes time limits for the contribution of nuclear and gas to climate change mitigation efforts. If the EU reverses its recent taxonomy changes in future, investors in nuclear and gas will have to rush to get rid of these exposures in order to remain aligned.

For now, ESG might like nuclear a little more than it did a year ago but EU taxonomy support only applies to certain subsectors, subject to conditions and set to be reviewed over time.

Overall, though, the Delegated Act should be understood as more an act of EU pragmatism than moral change of heart on what it means to be sustainable. Nuclear may have a role to play in net-zero efforts but will face an uphill battle to convert its detractors.  https://www.etfstream.com/features/does-the-eu-taxonomy-vote-mean-nuclear-is-officially-esg/

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September 27, 2022 - Posted by | climate change, EUROPE, politics international

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