Does Nuclear Power Deserve a Spot in Your ESG Portfolio?

The latest U.N. Climate Change Conference, COP26, emphasized decarbonization as the primary means to meet climate goals. While wind and solar power play obvious roles, they both produce intermittent power, creating a need for an ‘always-on’ backup. Nuclear power is the only widely available carbon-free option to fulfill that need.

Currently, nuclear power accounts for about 20% of all U.S. electricity generation. That’s about the same level as coal (19%) and all renewable energy (wind, solar, etc.) combined (21%). While these trends are going in the right direction, shutting down nuclear power in favor of ‘always-on’ natural gas or coal power would be counterproductive.

Despite their importance to reaching climate goals, over 70 nuclear reactors have shut down since 2000 for political, economic, or technical reasons. Belgium and Germany recently announced plans to phase out nuclear power in 2025 and 2023, respectively, while many environmentalists are morally opposed to building nuclear reactors.

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Nuclear power has a bad reputation due to high-profile meltdowns in the past and the toxic waste it produces. In addition, many investors have a hard time overlooking the association of ‘nuclear’ with war and weapons that have world-ending possibilities. And, of course, mismanagement of nuclear reactors or their waste could prove catastrophic.

That said, nuclear power produces less toxic waste than carbon and solar. In fact, 60 years’ worth of U.S. atomic waste would fit inside one Walmart store! Nuclear power also has a much smaller footprint than renewable energy. Solar farms require hundreds of times more land, while their production involves carbon-intensive mining and manufacturing.

Nuclear power is also evolving to be safer and less toxic. For example, Bill Gates’ startup, TerraPower, aims to develop nuclear plants that recycle their own waste as fuel. The same technology relies on fundamental physics to prevent meltdowns—if it gets too hot, fuel pins will expand, and neutrons slip through to cool the core automatically.

Climate-focused investors can make a big difference by adding nuclear power to their portfolios. Unlike solar and wind power, nuclear power requires a significant capital investment, and many governments are cutting back on their expenditures. More significant investment can help develop lower-cost technology and provide funding for construction.

Unfortunately, investors may have a hard time investing in nuclear since it’s absent from many ESG mutual funds and ETFs. In fact, BlackRock’s Global Energy & Power Infrastructure Fund mentions renewable energies, waste-to-energy, and even natural gas (a fossil fuel), but has no mention of nuclear power.

That said, there are several options to add exposure:

 

Data as of December 9, 2021 via Morningstar.

Nuclear power has developed a bad reputation over the past several decades. Despite its ‘always-on’ carbon-free energy production, many environmentalists, government regulators, and investors have shunned the technology due to past reactor meltdowns and toxic waste. However, many of these concerns are overblown.

The COP26 conference made it clear that nuclear power plays a huge role in reaching climate goals. As a result, climate-focused investors may want to add nuclear investments to their portfolios. While many ESG funds exclude them, the list above provides a starting point where investors can invest and make a difference.

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