Weapons are ESG now. Investment lessons from sanctions. Energy security vs autocracy. Plus, is it nuclear's chance to glow up?
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🌏 The window of time to mitigate and adapt to climate change is “brief and rapidly closing,” says the latest IPCC report. One in three people are exposed to deadly heat stress, rising to three in four by 2100. The warning arrives when all eyes are on the Russian-Ukraine crisis, which has forced a reckoning over Europe’s dependence on Russian gas. “As current events make clear, reliance on fossil fuels makes energy security vulnerable to geopolitical crises,” the UN’s António Guterres said on Monday.
🇺🇦 A month ago, the solution would have been renewables. The Ukraine crisis, however, is changing the face of sustainability. Having been reminded that S + G issues exist at a state level, the West is reevaluating its relationship with autocracy. Swapping gas for renewables means exchanging Russia for China, substituting one geopolitical challenge for another. The “Ikea of the energy transition,” China accounts for 80% of US and 90% of EU imports of materials critical for renewable development.
🌾 It’s not only energy. Food security is one of many humanitarian disasters emerging from the crisis, building on the agricultural plight outlined by IPCC. By day one of its invasion, Russia effectively controlled 30% of the world’s wheat exports. Worrying? Not for China, which accounts for 47% of grain inventories after having spent much of 2021 snapping it up. Beijing also dropped sanctions on Russian wheat imports back in January. Prescient for an administration supposedly in the dark about Putin’s motives.
💣 War. What is it good for? ESG, apparently. The defence industry is seizing its opportunity to be branded as sustainable in the EU’s Social Taxonomy. Sure, the energy crisis shows what happens when we withdraw financing from things we need. But if anything is ESG, might it be time to retire ‘ESG’ in favour of, say, outcomes on a case-by-case basis? Or do we continue to brand as morally Good whatever is financially Good? Blame everyone who justified ESG with outperformance (2018-2021).
💸 Money is a social construct. Bailouts, stimulus, sanctions—all reinforce the idea, articulated by Matt Levine, that money is a tool of social decision-making. On the one hand, cool that the global financial system rewards prosocial behaviour. On the other, it’s not the only system. When the US punishes a country with expulsion, it undercuts its hegemony by a) creating the demand for an alternative system, and b) undermining trust in the dollar as a neutral world reserve. Something for the divest/engage debate.
Nuclear power is having a moment. First, as a controversial contender for the EU Taxonomy’s list of sustainable activities. Second, as a viable alternative to Europe’s dependency on Russian oil. Third, as a potentially devastating casualty of Russia’s invasion of Ukraine.
On which story should investors focus: climate change, energy security, or radioactive disaster? This week, we dig into 120 million peer-reviewed texts in the Util database to measure the real SDG performance of nuclear.
Good, bad, or ugly?
Nuclear energy is clean in that it reduces emissions and the effects of climate change, supporting the obvious SDG13 (Climate), SDG14 (Life Below Water), SDG15 (Life on Land). Positive climate impact is also good news for SDG1 (No Poverty) and SDG3 (Health), as nuclear is associated with less acid rain and air pollution. According to one source, nuclear has prevented an average 1.84 million air pollution-related deaths and 64GT of CO2 emissions from fossil-fuel burning.
It’s not all good news for SDG3. Infamously, radioactive waste creates a risk of hazardous pollution. “Fiendishly hard to store,” according to our source texts, it has a long decay time and contains “significant quantities of fissible and fissile materials,” requiring supervision for centuries. Then there’s the human cost of power plant accidents. These risks reduce nuclear’s contribution to SDG9 (Industry, Innovation, Infrastructure), SDG11 (Sustainable Cities & Communities), and SDG13 (Responsible Consumption & Production). As a leading cause of thermal pollution, it also undermines SDG14.
But there is consensus about the nuclear industry’s success in reducing waste volumes and sources. The total waste produced by the nuclear industry *ever* equates to 250,000 tons, or one US football field at a height of 9m. Oil & gas generates the same amount every year; coal, every hour (and it's also radioactive). Those industries take relatively little responsibility for their waste.
Its risks aren’t enough to seriously undercut nuclear’s contribution to SDG7 (Affordable & Clean Energy), SDG8 (Decent Work & Economic Growth), SDG9 and SDG11. Nuclear “plays an important role in global climate change mitigation where energy security and affordability goals take precedence.” It’s here that nuclear shines. (Or glows.) Unlike other energy sources, nuclear straddles sustainable development from both an environmental and socioeconomic perspective. It’s widely affordable, available, and reliable, insulating countries—or liberal democratic unions—from energy shortages and insecurity. And, unlike oil & gas or renewables, nuclear doesn’t demand and deplete natural resources.
Responsibility and safety are critical considerations. Russia’s activity in Ukraine is an alarming reminder of the dangers of nuclear, but it also reinforces the case for national energy security and independence. There’s another. As this week’s IPCC report made clear, both society and environment are in immediate danger from climate change: “Nearly half of humanity is living in the danger zone—now. Many ecosystems are at the point of no return—now. Unchecked carbon pollution is forcing the world’s most vulnerable on a frog march to destruction—now.”
Renewables alone can’t mitigate those threats now, nor is the market insulated from autocratic whim while China has a monopoly on rare earths.
Nuclear, on the other hand, “can make an important contribution to reducing greenhouse gas emissions while delivering energy in the increasingly large quantities needed for global socioeconomic development,” finds our source texts. Indeed, “without the use of nuclear power, chances of attaining the goals of climate protection verge on nil.”