This raises questions about the role of nuclear energy: can it help us achieve energy security while reducing emissions? And, for investors interested in sustainable development, does nuclear have its place in a fund that integrates ESG issues?
While the European Sustainable Financial Disclosure Regulation allows nuclear energy to be included in funds marketed as sustainable, there is no comparable regulation here in Canada. It is therefore up to the market to decide whether nuclear belongs to a Canadian ESG fund.
Nuclear exposure in Canadian ESG funds
An analysis of a small sample of Canadian ESG funds suggests at first glance that the industry is divided on nuclear. The table below lists six Canadian equity ETFs that are marketed with an ESG or sustainability focus. Since these are all Canadian equity funds, the S&P/TSX 60 is a reasonable benchmark, and this index includes Cameco, one of the world’s largest producers of uranium used for nuclear energy. I scoured each fund’s holdings to see if it included the Saskatoon, Saskatchewan-based company, and also checked for the explicit exclusion of companies involved in nuclear energy. The results are in the table below.
Table: Inclusion of nuclear energy in a sample of Canadian ESG ETFs
Click on the picture to enlarge.
Half of the funds surveyed include Cameco, and of the three funds that do not, two explicitly exclude companies involved in nuclear energy.
One way to interpret this analysis would be to say that the Canadian asset management industry is divided. Another would be to say that the industry responds to investor demand and that different investors have different preferences. Since these funds have different ESG strategies and objectives, I lean towards the latter.
Recent green bond issuances reinforce this interpretation. Despite the federal government’s clear support for nuclear energy as a key component of Canada’s net zero future, nuclear was excluded from its recent green bond issuance, along with tobacco, alcohol, gambling, weapons and fossil fuels. Given the federal government’s obvious commitment to nuclear power, I can only assume that nuclear has been ruled out as part of an effort to maximize investor demand, as it continues to divide the whole ESG.
That said, Tiverton, Ontario-based Bruce Power became the first to issue a green bond backed by nuclear power generation in December last year, and there was no shortage of investor demand. Bruce Power’s green bond was oversubscribed six times, signaling strong investor appetite for nuclear as a significant investment opportunity on the road to net zero.
A calculated risk
As uncomfortable as it may sound to say it out loud, nuclear power is an existing technology that can help achieve the twin goals of energy security and the move away from fossil fuels. It’s uncomfortable because it’s a polarizing topic and because I know many responsible investors and advisors reject the idea of nuclear in their portfolios. If you are reading this, I see you and share your concerns about the risks associated with nuclear power generation.
But we must recognize that there is no risk-free, zero-emission energy source capable of powering society as we know it, available at the scale and speed necessary to reduce emissions in the timeframe needed. . Renewables such as hydro, wind, solar, geothermal and hydrogen alone cannot put us on the path to a net zero economy in the next few years. Nuclear can step in to immediately meet baseload energy demand as renewable technologies develop and expand.
The potential risks of nuclear power generation are indeed significant. The main risks are reactor accidents, as we learned from the Chernobyl and Fukushima disasters, and the management of radioactive waste. There are also risks associated with proliferation more broadly. However, these risks are known and therefore much more manageable than the unknown risks of heading towards a 3°C world, which seems likely according to Climate Action Tracker modelling.
It should be noted that nuclear disasters are extremely rare. The International Nuclear and Radiological Event Scale, which tracks the severity of nuclear incidents and accidents dating back to the 1950s, identified only three events that qualified as “major” or “severe” accidents. These include the Chernobyl and Fukushima disasters, and one in the former Soviet Union. There were also dozens of smaller incidents, most of which occurred in the 20th century. These historic nuclear disasters should not be dismissed but must be put into context.
According to a peer-reviewed academic study, historic deaths from nuclear accidents pale in comparison to deaths from other energy-related accidents. Between 1800 and 2018, there were 4,856 deaths from 178 nuclear accidents. During the same period, there were 187,227 deaths from 160 hydroelectric accidents, 26,215 deaths from 890 oil accidents, and 55,414 deaths from 2,428 coal-related accidents.
The authors also used historical data to project future deaths from energy-related accidents out to 2040 under the International Energy Agency’s “Sustainable Development Scenario”, which takes into account a greater use of nuclear and other low-carbon energy sources. They found that the technologies likely to have the deadliest future energy crashes are solar power (1.3 million deaths by 2040), hydroelectricity (333,285 deaths), bioenergy and geothermal ( 70,904 deaths). In contrast, nuclear accidents are expected to cause only 5,483 deaths over the same time horizon.
Additionally, the World Health Organization (WHO) predicts that between 2030 and 2050, climate change will cause approximately 250,000 additional deaths. per year malnutrition, malaria, diarrhea and heat stress.
Thus, the trade-off between health risks is asymmetrical, with many more deaths predicted from climate change and other energy sources than from nuclear.
While none of these deaths are acceptable, we must recognize that no energy comes without risk. We live in a world of compromise and we must take calculated risks.
The province of Ontario took a calculated risk by betting on nuclear, and in doing so became the first North American jurisdiction to phase out coal-fired electricity. In 2003, coal accounted for 25% of Ontario’s mixed supply; by 2014, it had fallen to 0% as the province increased its nuclear capacity and improved grid reliability in the process. Today, approximately 60% of Ontario’s energy needs are met by nuclear, and its rapid transition from coal to nuclear represents the single largest emissions reduction measure on the continent, helping Ontario achieve its goal of reduction of emissions by 6% below 1990 levels for 2014. There were no major accidents.
Can we still count on nuclear energy? Probably not. We cannot fill the earth’s crust with radioactive waste, just as we cannot fill it with captured carbon; neither is sustainable. But given the climate emergency, both are needed to correct our course – at least for a period of transition.
Is nuclear part of ESG funds? It depends on the purpose of the fund. If the fund is aimed at investors who want to exclude a basket of industries they find objectionable, there seems to be a market for it.
But if the fund aims to reduce carbon exposure and/or finance the transition to a net zero economy, then there are good reasons to have exposure to nuclear energy. Major asset managers would go further and complement these holdings with stewardship activities to ensure strong governance, safe waste management practices, and free, prior and informed consent and engagement with Indigenous and other communities that may be affected.