Will Environmental, social, and governance (ESG) investment managers follow the govt in backing nuclear?

By Chloe Cheung, 19 Apr 23, https://www.ftadviser.com/investments/2023/04/19/will-esg-investment-managers-follow-the-govt-in-backing-nuclear/

Wind turbines and solar panels are commonly associated with low-carbon energy, but nuclear power is also being considered in the pursuit of net zero.

In a move to encourage private sector investment, chancellor Jeremy Hunt said in the spring Budget that the UK green taxonomy will class nuclear power as ‘environmentally sustainable’, subject to consultation.

Although nuclear fuels are not renewable, the classification would enable nuclear power to have the same investment incentives as renewable energy.

But despite being low-carbon, it is not uncommon to come across ESG funds and investment companies that exclude nuclear power generation. So will investment managers follow the UK government’s approach to nuclear power?

William Argent, lead adviser to the VT Gravis Clean Energy Income Fund, says the fund’s responsible investment statement does not currently allow exposure to nuclear power generation assets.

“There may be some very modest exposure to companies involved in the nuclear energy supply chain, providing services; but we do not have exposure to companies that own nuclear energy generation plants themselves,” he adds.

While the UK government wants to class nuclear power as ‘environmentally sustainable’, Argent says his position on nuclear energy has, at this stage, not changed. “We exclude it as a commonly perceived ‘controversial activity’.

“There would need to be a shift in that perception among our investors and more widely. We would not consider changing the stance unless there was a broader acceptance.”

Other funds avoiding companies that generate revenue from nuclear power generation include Quilter Cheviot’s Climate Assets Funds.

“While we recognise that nuclear power does not generate greenhouse gas emissions, and therefore it has a role to play in the net-zero pathway and transition away from fossil fuels, we do not consider it a ‘sustainable investment’,” says Claudia Quiroz, lead fund manager of the Climate Assets Funds, and head of sustainable investment at Quilter Cheviot.

Citing environmental and safety issues that “outweigh” zero emission credentials, she says: “Nuclear energy generates a significant mass of radioactive waste. In addition, however it is disposed of, that radioactive waste will remain for generations to come.

“Safety concerns, both accidental and deliberate, also exist. While the operation of nuclear power plants is undoubtedly safer than previous generations and an accidental disaster on the scale of Chernobyl is unlikely, safety challenges do remain.

“Nuclear power plants are also easy targets for malevolent acts such as terrorist threats, cyberattacks or acts of war.”

Although Quiroz describes the UK government’s intended sustainable classification of nuclear energy as ultimately a positive move, she adds that as sustainable investors, it will not change the fund’s philosophy on investing in nuclear energy.