The EU’s decision to add nuclear to its green taxonomy will only encourage investment into 14 listed companies in developed European markets, according to analysis from MSCI.
There are currently 60 companies that derive revenues from power generation within the MSCI Europe Investable Market Indexes, which cover almost the entire European equity universe for 15 developed markets. Of these, only 14 have any exposure to nuclear power activities.
According to the analysis, shared with Responsible Investor, less than 10 percent of the assets invested in European ESG funds apply nuclear power exclusions. When it came to vehicles that identify as Article 8 and 9 funds – the two tiers of EU funds that integrate sustainability considerations – MSCI found that less than 0.03 percent of the 10,000 it reviewed had implemented nuclear exclusions.
“Allowing nuclear power into the mix therefore doesn’t materially impact most ESG funds domiciled in Europe and expands the remit for utilities sector investability,” said an MSCI spokesperson.
Under the taxonomy, a new nuclear power plant would be recognised as taxonomy-aligned immediately and will have until 2050 to put in place measures to safely store highly radioactive waste. Finland, Sweden and France are the only member states working to bring permanent storage facilities online by 2050, although there are questions over France’s ability to meet this deadline following multiple delays and mounting costs.
Earlier this week, French utility EDF was reported to be planning to launch a new green financing framework through which it could raise up to €8 billion of annual nuclear spending.
According to the International Financing Review, EDF – whose nuclear production accounted for 69 percent of France’s electricity supplies in 2021 – said that any future green bonds will disclose whether proceeds will be used to finance nuclear energy. EDF has identified some €8 billion of capital and operating expenditure for nuclear.
EDF’s sustainability head declined to say when the first issuance to finance nuclear would be taking place.
In addition to adding nuclear to its taxonomy, the EU has also included gas in the list of eligible ‘green’ business activities under the framework. MSCI told RI the impact of this decision is harder to quantify due to the specific conditions utilities need to meet before being able to access green financing.
Under the rules, gas-fired plants will need to keep their emissions below the 270 gCO2e/kWh threshold, but the Intergovernmental Panel on Climate Change estimates that emissions intensity for the sector ranges from 350 to 490 gCO2e/kWh. Even if a plant manages to fall below the cap, gas-fired power is eligible under the taxonomy only when it replaces coal. This requirement means that it is not currently feasible to assess the taxonomy alignment of gas power plants based on existing disclosures, said MSCI.
Climate Bonds Initiative today announced that it would not follow the EU’s lead by including natural gas within its updated framework. The influential non-profit, which is led by EU taxonomy adviser Sean Kidney, said in the statement: “Despite the attention received in recent months, energy from the use of gas (without carbon capture and storage facilities) is not eligible”.
Last week’s parliamentary vote marked the final serious hurdle for the EU’s efforts to revise the taxonomy legislation in favour of nuclear and gas, but legal challenges from a number of member states and environmental NGOs are still on the table and could further draw out the process.