Ontario Pension Abandons Nuclear Tech Buy

(April 22, 2011) — The Ontario Municipal Employees Retirement System has backed out of the purchase of Atomic Energy of Canada Limited (AECL), claiming that the disaster in Japan would hinder the nuclear market.

A report over the failed deal obtained by the Globe and Mail revealed that the international market for nuclear plants will not be as strong as had been expected. According to the Canadian newspaper, the pension expected the government to provide financial support for research and development, which the government refused to do.

Elsewhere, German utility firm RWE has encountered criticism from pension funds and other shareholders over its board structure and its response to the government’s temporary moratorium on nuclear energy. The government has signaled it will try to accelerate the country’s nuclear phase-out, which is presently set for 2036. “We don’t think the supervisory board has the right composition – a problem that’s all the more pressing given the fierce debate about nuclear energy in Germany,” said Hans Hirt at Hermes, which acts for pension funds, told the Financial Times.

Looking ahead, institutional investors, among others, may be slower to embrace nuclear energy as an investment as they take into account how environmental factors will impact their portfolios in the long-term, Max von Bismarck, director and head of investors of the World Economic Forum, told aiCIO. Von Bismarck, who recently published a report headed by 19 major pension and private investment funds about the future of long-term investing, cites the universal owner hypothesis to explain why institutional investors may avoid nuclear energy. “With nuclear investment, there are long-term questions about such things as storage. If you’re an institutional investor with a long-term time horizon and you broadly diversify, there are certain risks that may be externalities for other market participants, which thus become internal risks for you,” he said, noting that long-term investors are often especially sensitive to environmental risks.

Furthermore, Von Bismarck indicated that while environmental, social, and governance (ESG) factors have traditionally played a more active role among European investors, large funds like the California State Teachers’ Retirement System (CalSTRS) and the California Public Employees’ Retirement System (CalPERS) have become role models for other US funds. “We assume ESG factors will become more and more important to institutional investors in the US,” he said.