Nuclear energy is expected to be a crucial contributor to lowering the world’s carbon emissions output to net zero by 2050. The International Energy Agency (IEA) puts it this way: “As an established large-scale low emissions energy source, nuclear is well placed to help decarbonise electricity supply.” ^[1] Without a rise in nuclear energy sources (or worse, with a decline), the IEA calculates that renewable sources such as solar and wind would need to take up a significant amount of slack, along with greater reliance on new technologies that are not yet commercially viable, such as geothermal energy and carbon capture and storage. The transition to the low-carbon economy would be significantly more challenging and expensive.

At the end of July 2024, NEI removed its exclusion on nuclear energy companies so that we could provide more opportunities for investors in this area. ^[2] The companies that became eligible for investment in NEI ESG Canadian Enhanced Index Fund following our baseline review were Cameco, Denison Mines, Energy Fuels, and Nexgen Energy.

The two most significant material risks we evaluated as part of the baseline review, common to all nuclear energy companies, were safety and waste management. Because nuclear energy is such a highly regulated industry in Canada and around the world, we are able to rely on company adherence to those regulations as our primary means of risk assessment. Regulations and by-laws under the Nuclear Safety and Control Act include titles such as General Nuclear and Safety Control Regulations, Radiation Protection Regulations , Uranium Mines and Mills Regulations, and Nuclear Security Regulations , among others. ^[3]

One area that we spent more time researching was the companies’ relationship with Indigenous peoples, especially with respect to mining—all of which currently occurs in northern Saskatchewan. ^[4] For example, Cameco, which is among the top five uranium producers in the world, ^[5] has a community engagement program that brings together another mining company, four municipalities, and three First Nations. There is also a long-term environmental monitoring program established for the Eastern Athabasca region, designed to monitor cumulative downstream effects of uranium and milling operations. Denison Mines has an Indigenous Peoples Policy, and in 2023, the company signed a Shared Prosperity Agreement with English River First Nation for the development and operation of the company’s Wheeler River project. ^[6]

As of this writing the companies have a neutral weighting to the Solactive Canada Broad Market Index, which is the index our fund seeks to replicate. NEI ESG Canadian Enhanced Index Fund is rebalanced annually, so there is the potential for the weights to be adjusted in the future based on subsequent evaluations—they may be overweighted, underweighted, or remain neutral relative to the index. All four companies, led by Cameco, have outperformed the Solactive Canada Broad Market Index and the S&P/TSX Composite Index since they first entered the fund on August 16 last year. By December 31, 2024, shares of Cameco had surged 34%, roughly four times the return of each of the two indices.

There are many demand drivers that we believe support the case for ongoing opportunities in the nuclear energy sector. The need for low-carbon energy sources able to provide reliable baseload power ^[7] is one prominent and growing factor. The surge in demand for cloud computing and artificial intelligence services, which are energy intensive operations, is another. As the prevalence of electric vehicles increases, so too does the need for grid power to re-charge them—another use case for nuclear energy. The trend of “reshoring,” which is when countries bring back industrial and manufacturing operations that had been transferred overseas, is also leading to increased energy needs for the home country. This is a growing trend in the U.S. and is only expected to grow more with the incumbent Trump administration.

Policy support is also increasing. The Biden administration’s Inflation Reduction Act offered significant tax incentives for the industry; the European Commission has included nuclear energy in its climate taxonomy; and at COP28, more than 20 countries (including the U.S. and Canada) endorsed the “Declaration to Triple Nuclear Energy” by 2050^[8].

That’s not to say we expect the upscaling of the industry to be a smooth process. Infrastructure build-outs take time in any industry, let alone one as controversial as nuclear. The regulatory environment and permitting procedures are complex, though several initiatives have been introduced to lighten the burden. Other challenges include a dearth of skilled labour and supply chain constraints.

Despite the hurdles, the bottom line is that nuclear energy plays a significant role in global carbon emissions reduction, and that is likely to translate to investment opportunities.

^{[1] https://www.iea.org/reports/nuclear-power-and-secure-energy-transitions/executive-summary.}

^{[2] https://www.neiinvestments.com/content/dam/nei/docs/en/press-releases/2024/NEI-SPFiling-PR-en.pdf.}

^{[3] https://www.cnsc-ccsn.gc.ca/eng/resources/news-room/feature-articles/cnsc-unique-regulator/.}

^{[4] https://www.cnsc-ccsn.gc.ca/eng/uranium/mines-and-mills/.}

^{[5] https://world-nuclear.org/information-library/nuclear-fuel-cycle/mining-of-uranium/world-uranium-mining-production.}

^{[6] https://denisonmines.com/news/denison-announces-signing-of-landmark-shared-prosp-122794/.}

^{[7] Baseload power sources are the plants that must continuously operate to meet minimum power demand and are critical components of an electrical grid.}

^{[8] https://www.energy.gov/articles/cop28-countries-launch-declaration-triple-nuclear-energy-capacity-2050-recognizing-key.}