Industry must work to attract ESG investments, panel says

16 April 2021

The nuclear power industry and its supply chain already conforms with the environment, social and governance (ESG) principles being discussed by investors, delegates at the World Nuclear Fuel Cycle forum heard on 14 April. However, speakers in a session on ESG investments in the nuclear fuel cycle called for the industry to be more vocal in getting this message across.

The panel in the ESG Investments in the Nuclear Fuel Cycle session of the World Nuclear Fuel Cycle forum

Opening the session, moderator Riaz Rizvi - a partner at Rice Capital Partners and former chief commercial officer for Kazatomprom - said there were three pillars to ESG. The environment pillar includes climate change, pollution and waste, and environment opportunities such as clean technology and green building. "Water scarcity and biodiversity are some of the other factors that investors are really thinking about," he added. The social pillar covers human capital, stakeholder opposition and social opportunities. The governance pillar covers corporate governance and corporate behaviour. This, Rizvi said, "really tries to address alignment of stakeholder interests, not just shareholder interests".

"ESG has become the topic of discussion in the nuclear sector," he said, noting that some people attribute ESG as the reason for the "spectacular" rise seen in uranium equities over the past six months.

Between 2018 and 2020 the value of US assets under management that incorporate ESG principles has increased from USD12 trillion to USD17 trillion, Rizvi said. "Within that US context, the top issue is climate change, representing about USD4 trillion out of the USD17 trillion." Globally there is about USD45 trillion looking for ESG investments as of 2020, he said. "It's a clear trend that's emerging as a strong driver in investment decisions and capital allocation."

However, he referred to research carried out by MSCI that gave specific ESG factors and ratings to utility companies. This showed that only 18% of the 425 utility companies assessed aligned with the UN's clean and affordable energy sustainable development goal. In the energy sector, in 2020, fossil fuels remained a key source of revenue for over 90% of energy companies on the list.

Driving forces

Rizvi said ESG has been high on the agenda over the past years and is now coming into mainstream public discussion. He asked the panellists who or what was driving this agenda.

"It's coming from investors, particularly those who invest on behalf of other investors," said Brandon Munro, CEO of Bannerman Resources. He said younger investors are starting to have their own investment funds. "There is a tier of fund managers who see it as opportunity to harvest that money", he said, and there is a "willingness and appetite for making those sorts of choices as to who you do or don't want to invest in."

Jarret Adams, founder and CEO of Full On Communications, agreed, saying that investors are looking at their choices and wanting their money also to be a force for good. Younger investors "care about what their actions and investments are doing and will choose a strong ESG option every time."

Arthur Hyde, a partner and portfolio manager at Segra Capital Management, said for most investors much of the considerations that are driving ESG integration have been part of the investment process for a long time. Those processes, he said, have become more formalised over the past two years. "The non-financial considerations of an investment have risen to a point where they are now viewed on par with the financial considerations."

The focus of investors is on the environmental part of ESG, especially decarbonisation, said Grant Isaac, senior vice-president and CFO of Cameco. He said there are different actors driving the move to ESG principles, including the investment community driving through net-zero targets which used to be government targets, but which have now become private sector targets.

Recognising nuclear's attributes

Hyde said that from the investor side there is no "one-size-fits-all ESG approach" as there are diverse stakeholders with diverse views. From an industry perspective, the nuclear sector should focus not just on governments and policymakers, but also private capital and ESG ratings agencies.

"When you look at the actual environmental attributes of nuclear energy, as well as the social and governance things, and you look at what those criteria are that these investments are being judged on, this is what we in the nuclear sector have been doing all along," said Adams.

Munro noted that Bannerman Resources has significantly invested in its corporate social responsibility. "Every uranium company should be investing a sizeable amount of its budget in those areas," he said. "Our investment has been generous but has paid off enormously and over time this increases the strategic value of a company. A strong sense of shared social licence with host community makes things easier in future. When done properly and authentically, ESG is a very good investment."

Adams said the nuclear industry "broadly does an excellent job in conforming to ESG criteria. Where we fall down is getting that across to the investment community and the broader public."

However, Hyde said there is a perception amongst investors that the nuclear sector carries risk because of personal biases: "The more you know about the industry the more pro-nuclear you tend to be." Education is needed, he said, on why nuclear is necessary in the fight against climate change and for sustainable development.

Self-promotion required

If the nuclear sector makes a "meaningful commitment" to ESG and ESG procurement, Isaac said, it will "benefit more as these become a higher priority in different jurisdictions." However, he noted there is not yet a level playing field and there are still challenges that remain.

Munro said the nuclear industry must recognise its own importance in tackling climate change. It needs to "do more in terms of standing up and being seriously proud of what we do for the world and our incredible attributes - right from uranium miners, throughout the fuel cycle and of course at a utility level." He said the industry tends to be "so technically-driven and so precise in our thinking that the art of communicating becomes a very distant second to the science of what we do so well."

The industry needs to view itself as a clean energy source, Adams said. This starts with ensuring all those who work within the industry acknowledge this. Third party advocates and external supporters must also be convinced. This, he said, requires a "professional, long-term strategic investment" of money and resources "into getting the story out".

Isaac said nuclear energy is becoming more acceptable to investors and they are starting to "crack through" the four main biases: economics, waste management, proliferation and safety. However, the industry must be prepared with "market-ready messages", making the case to investors without overloading them with technical information.

The current discussions about ESG offer a "very unique window in which our industry needs to be more proactive at making sure the classification is defined in such a way that it includes us and includes all the tremendous advantages we can offer," said Munro. He added that window will close in a couple of years.

Hyde added that a lot of the nuclear industry's environmental impact is in the fuel cycle side, so when making the case for ESG the industry needs to "make the case for ESG to be fully taken into account in the fuel cycle" in addition to the supply chain and electricity generation.

Closing the session, Rizvi said the supply chain for "getting nuclear fuel into reactors and to produce electrons" is "very ESG-compliant". Compared with other energy sources, nuclear and uranium "are streets ahead". He said utility companies should act as ambassadors for the nuclear industry. Nuclear generation asset owners need to be "brave enough" to proclaim to their customers that they are getting clean energy because of their nuclear plants, he said.

Researched and written by World Nuclear News