With the nuclear calamities of Three Mile Island and Chernobyl fresh in the public mind, the 1980s saw a number of socially responsible investment funds pledge to keep nuclear energy out of their portfolios. The trend quickly spread, and soon the exclusion of companies that were involved in nuclear became the bedrock of socially conscious investment funds.
Decades later, that consensus is now breaking down. The environmental and economic risks of nuclear power are being overshadowed by mounting anxiety around the climate crisis. Pushed by governments in Europe and North America, the responsible finance industry is revisiting the nuclear energy exclusion.
“Nuclear energy will be an essential source of fuel in the transition to the renewable sources required to support a low-carbon economy,” said Marian Macindoe, head of ESG stewardship at San-Francisco-based Parnassus Investments, as the veteran sustainable fund company announced last year that it was dropping its nuclear exclusion, which had been in place since 1984.
More managers are dropping their nuclear exclusions. In a survey of 200 European and North American fund managers with social and environmental exclusions, 37% of funds reported having a nuclear energy screen in 2022, down from 43% in 2021.
This turnabout has been most pronounced in the green bond market, where power utilities have, controversially, been adding nuclear energy as an option for green bonds.
In a 2023 report, the International Energy Agency (IEA) estimates that to meet net-zero goals, electricity’s share of total energy demand needs to double between now and 2030 to accommodate the electrification of transportation, building heat, industrial processes, agriculture and information technology. At last year’s COP28 climate conference, 22 nations pledged to triple their nuclear energy capacity by 2050 to generate a large source of low-carbon “dispatchable” energy – meaning it can provide power when intermittent renewable energy isn’t available.
With this in mind, nuclear green bonds promise to help fund decades of net-zero energy for the public and years of clean financial returns for investors. But are nuclear green bonds suitable for ESG-focused investors, given the long delays, cost overruns, and safety and waste risks of nuclear plants? Is the nuclear industry using a smokescreen of net-zero to cover up its sustainability problems?
Nuclear green bonds hit the market
The movement to think about nuclear as a green investment began in 2021, when seven European Union member countries – led by nuclear-heavy France – began pressuring the European Commission to ensure that the EU’s climate policy included nuclear.
Meanwhile, Canada, and specifically the province of Ontario’s two nuclear utilities, became the first to push the envelope. The world’s first nuclear green bond was issued by privately owned Bruce Power, operator of the Bruce Nuclear Generating Station three hours north of Toronto, the world’s largest nuclear plant. The company issued a $500-million offering in late 2021 and two additional issues of $600 million each for a total of $1.7 billion. Proceeds are financing a refurbishment and 30-year extension at Bruce, in service since the 1970s and 1980s.
Investors – particularly institutions – welcomed the bond issues. Demand for both issues was about six times higher than the amount issued.
By 2022, the conversation around nuclear was shifting around the globe. After months of contentious debate, the EU agreed to add natural gas and nuclear to its EU taxonomy, the official list of acceptable sustainable investments to help Europe finance its ambitious climate goals. That same year, Ontario Power Generation, owned by the provincial government, issued $300 million in nuclear green bonds to refurbish its Darlington Nuclear Generating Station.
This year, the Canadian federal government became the first national government to issue a green bond that included nuclear expenditures.
The bonds are ranked “medium green” by investment rating service S&P Global. Refurbishments are ranked higher than new builds, and Canadian CANDU reactors are ranked higher than other reactors because CANDU reactors use natural, rather than enriched, uranium. The depleted natural uranium in spent CANDU fuel bundles is considered at lower risk of being turned into weapons, which typically use enriched uranium. Also, recent refurbishments in Ontario have been completed on time and on budget, in contrast with cost overruns and delays typical of the nuclear industry.
However, Canadian reactors lose points in the S&P Global ratings because Canada hasn’t yet developed a permanent nuclear-waste disposal solution, something environmental advocacy groups say should negate nuclear bonds from being labelled green.
In January of this year, the government of Ontario went ahead and added nuclear energy to its green bond framework in anticipation of a planned major expansion, including refurbishment of its Pickering Nuclear Generating Station, construction of four new small modular reactors and a new plant capable of almost doubling Bruce’s output. If implemented, the plan will be the largest nuclear construction program in the Americas or Europe, although approvals from the Canadian Nuclear Safety Commission and other bodies such as local First Nations could present roadblocks.
A few weeks after Ontario’s announcement, the Canadian federal government became the first national government to issue a green bond that included nuclear expenditures.
Canada is no longer the only hot spot for nuclear bonds. In France, Électricité de France – the country’s publicly owned power utility – issued a €1-billion nuclear green bond for refurbishments in November, making it Europe’s first green bond for nuclear energy. A few weeks later, Teollisuuden Voima Oyj, Finland’s privately owned nuclear utility, launched a €280-million nuclear green bond to refinance a new plant and to refurbish two older plants.
These offerings are just the beginning, says Nick Pfaff, deputy CEO of the International Capital Market Association. In an interview with Responsible Investor, he said nuclear green bonds could make up more than 10% of energy sector green bonds, especially in jurisdictions like Canada and France where nuclear energy is predominant.
The state of the debate
Both sides of the nuclear ESG debate agree that a reduction in carbon dioxide emissions and fossil fuel use is desperately needed. Some climate deniers argue for nuclear energy, but the disagreement in the ESG community is whether nuclear qualifies as a sustainable energy option.
A long-standing thought leader in this debate is Amory Lovins, co-founder of the Rocky Mountain Institute (now called RMI), the famous Colorado-based think tank and advocacy centre for low- and renewable-energy alternatives. He argues that by conserving energy and creating it more sustainably through wind, solar and other small-scale, distributed and renewable “soft-energy” paths, large-scale and centralized “hard-energy” systems like fossil fuels or nuclear power aren’t needed.
Lovins, now 76, argues that renewables are cheaper and much more efficient than nuclear power, which requires at least a decade of planning and construction. “It’s better to use fast, cheap and certain rather than slow, costly and speculative,” he said in a recent interview in The Denver Post.
It’s better to use fast, cheap and certain rather than slow, costly and speculative.
- Amory Lovins, co-founder of the Rocky Mountain Institute
While nuclear megaprojects like Britain’s Hinkley Point C lumber along overbudget and years late, lower-cost renewable energy grew by 50% in 2023, the 22nd year in a row that global renewable capacity additions set a new record, according to the IEA.
Environment professor Mark Winfield, at York University in Toronto, shares Lovins’s view that nuclear energy could serve to delay the energy transition, rather than accelerate it. Winfield argues that efficiencies are reducing electricity demand, and even if more generation is needed for electric vehicles and heat pumps, this doesn’t mean that this “demand can only be served by large centralized, capital-intensive, high-risk and inflexible generating assets like nuclear power plants.”
One of the leaders on the other side of the debate is climate scientist James Hansen, who is famous for raising awareness of the climate threat at U.S. congressional hearings in the 1980s.
Nuclear is “one among several technologies that will be essential to any credible effort to develop an energy system that does not rely on using the atmosphere as a waste dump,” he wrote in a letter to world leaders in 2013 with other climate scientists.
Hansen notes that nuclear can provide enough power for “whole civilizations,” something that would make it easier for small-scale and intermittent renewable energy to fill any remaining gap in fossil-free generation.
Samuel Miller McDonald, a geographer and the author of a forthcoming book on the science and history of progress, steers a middle ground and warns against listening to commentators who make strident claims in one direction or the other.
In a 2021 article in the Boston Review, he argues that nuclear energy could accelerate the energy transition and reduce emissions in places with stable, centralized grids, but these hard-energy systems are dependent on bureaucratic state planning. Renewable energy – by contrast – holds potential for cooperative ownership and local management. Choosing between these doesn’t doom societies for all time, he argues, but it does narrow the range of short-term possibilities.
“The debate that needs to occur around nuclear is not just whether it can reduce carbon emissions or provide efficient electricity, or whether it is ‘safe and clean,’” McDonald says, “but also whether it should be part of the vision for how human societies adapt and, with any luck, thrive in the new and more dangerous world we have created.”
Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now Responsible Investment Association).
