The need to accelerate the clean energy transition has received unanimous support across party lines, but opinions diverge regarding the right path to achieve this, particularly in regard to the role nuclear energy plays in the process, if any.
In May, the Albanese government unveiled its cornerstone Future Made in Australia (FMIA) policy, pledging $22.7 billion over the next decade to maximise the economic and industrial benefits of the move to net zero.
As part of the FMIA agenda, the government flagged the role institutional investors, including superannuation funds, need to play in meeting its ambitious goals.
John Pearce, chief investment officer at UniSuper, who previously stated that funds must primarily meet their members’ best financial interest, said funds in particular focus on proven, scalable technologies.
“What are we looking for with institutional investing? Firstly, we want to invest in something where you’ve got proven technology at scale,” he told InvestorDaily.
For Pearce, there are two energy sources that “stack up” – solar and wind energy.
“Solar seems to stack up really well, it ticks a lot of boxes [and there’s] onshore wind.
“That’s probably where we’ll be placing our bets,” he said.
However, with an election approaching, the Liberal government has suggested that nuclear power could be the most competitive solution for low-emission electricity in Australia.
According to Pearce, nuclear power doesn’t stack up on many fronts, particularly for an institutional investor that needs to see tangible financial wins.
“You want to invest where you’ve got a payback within a reasonable period of time and to me, that’s definitely within 10 years,” he said.
Similarly, other funds have voiced their opposition to the idea, with Cbus telling the media it doesn’t see nuclear as a part of the energy transition going forward.
Performance test a barrier to clean investing
In the past, it’s been suggested that the performance test super funds are subjected to unintentionally stops them from adopting sustainable finance investment strategies at scale, including investment in renewable energy projects and other activities where capital is critically needed for the net zero transition.
The Australian Sustainable Finance Institute (ASFI) said earlier this year that the test is “at odds with Australia’s national transition goals and inhibits appropriate management of systemic climate and other sustainability risks”.
At the time, Rest told Treasury it supports the creation of additional benchmarks within the current test framework, which would cater for emerging areas including the energy transition and decarbonisation.
“Rest supports investing in areas which provide strong risk-adjusted returns but can also contribute to the quality of the world our members retire into,” it said.
Moreover, in its pre-budget submission, the fund said it supports initiatives that mobilise private sector investment in support of Australia’s emissions reductions targets and transition to a low-carbon economy.
“Around 80 per cent of Rest’s membership will retire into a post-2050 world, and we understand how important it is that we manage the financial risks posed by climate change to our members’ retirement savings, while harnessing opportunities as the world transitions to a low-carbon future,” the $80 billion fund said.
“While maintaining the priority on climate-related sustainable finance reforms, Rest would encourage the government to outline a roadmap (and provide appropriate resourcing within government) for additional environmental and social focus areas for consideration as part of the next phases of the sustainable finance agenda,” it added.
How asset managers feel about nuclear
Speaking to InvestorDaily last month, Nanuk Asset Management’s chief investment officer (CIO), Thomas King, cast doubt on the viability of parts of the government’s FMIA agenda.
“There are things that we will be good at manufacturing or processing in Australia, and there’s a lot of things that we will never be internationally competitive at, and I think there’s a wonderful opportunity for enormous costs to be imposed on taxpayers or consumers through trying to do things in Australia that we are never going to be internationally competitive at,” he said.
King was apprehensive about Australia’s more nascent industries, noting that things like solar don’t offer a competitive advantage and are “utter nonsense” to try to develop.
“It’s absurd to think that that’s likely to be internationally competitive and that we should be investing government funds in supporting that to happen,” King said.
“Processing steel or iron ore to green steel, we do have some prospect of competitiveness in an industry like that, and so aspects of this policy have some merit, I think.
“Some of the other announcements are pretty questionable.”
Meanwhile, while some fund managers support the Liberal Party’s plan, which suggests that nuclear power can “maximise the highest yield of energy per square metre and minimise environmental damage”, others are sceptical.
For King, the viability of nuclear energy in Australia peaked five decades ago. Today, though, it “wouldn’t even be in the top five things” to meet the electrification demand.
The idea of a nuclear future, however, was floated by Global X’s head of investment strategy, Scott Helfstein, in June, who posited it can play an important role in bridging the forthcoming electrification gap facing global economies.
For Infinity Asset Management CIO Piers Bolger, a “mature conversation” is key to determining the energy sources necessary for the net zero transition.
“Nuclear needs to form part of that conversation,” he said, adding that it is a “proven safe form of energy and has been so for many decades.”
“As other countries have shown, it cannot simply be wind and solar.”
