Copenhagen Atomics, the Danish developer of a thorium molten salt reactor that turns nuclear waste into fuel, was among 40 startups selected in the latest round of EIC Accelerator funding…
Climate tipping effects may be kicking in
For those tracking the state of the climate, the report published by the BBC showing that tropical forests were being destroyed at the fastest recorded rate over the last year, was frightening, with the prospect of total forest dieback and "savannisation" of these areas is a growing risk.
Compounding the loss of old-growth tropical forests in 2024 (estimated to have covered an area as large as Ireland) and the release of their carbon stores, is the loss of the moisture and climate systems maintained by those forest ecosystems, which previously provided localized cooling effects, produced cloud cover and contributed to the atmospheric moisture necessary for rain. These had also helped to brighten the earth, thereby reflecting more of the sunlight that otherwise would cause heating. This moisture and water cycle activity gets destroyed along with the trees, plants and animal life. This climatic loss to broad areas may be having more of a negative feedback effective on the planet's overall warming than has previously been recognized.
Global Surface Temperature Change (published 2/3/25)
This news add yet more data to the alarming report published in February by Dr. James Hansen, Dr. Pushker Kharecha and a team of sixteen other climate scientists plainly titled "Global Warming Has Accelerated: Are the United Nations and the Public Well-Informed? In it, Dr. Hansen's team explains that global temperatures have leaped up more than a half degree (0.7°F or 0.4°C) over the last 2 years, with a total average temperature rise of +1.6°C relative to the temperature at the beginning of last century (the 1880-1920 average). This reflects a temperature rise over the +1.5°C (or 2.7°F) level that we set as our goal for maximum increase. As of the last year, we've already exceeded that level.
These increases have, according to Hansen, baffled Earth scientists, as the increase's magnitude was literally off the charts. There were multiple explanations presented as to what could have caused such a big increase. Declining aerosol pollution was seen as a key contributor, by reducing nuclei that aided cloud formation and thus reflection of sunlight, thereby effectively darkening earth and allowing more heat to be absorbed. These are very troubling and portentious changes that may, in fact, show that feedback effects are already accelerating the heating impacts of our CO2 emissions, such that they no longer follow a direct relationship.
Dr. Hansen's report received considerable criticism both because it departed scientifically from the mainstream's more conservative consensus of a lower rate of warming and climate "sensitivity," as determined by the IPCC, and because it called for "a complement to the IPCC approach" to "avoid handing young people a dire situation that is out of their control." In a response to some of that criticism, Drs. Hansen and Karecha decried the ad hoc opinions, ad hominem attacks and sense that the media has gravitated towards reporting the opinions of just a small handful of scientists, rather than covering the total community and range of analyses, including their own.
Dr. Anatassia Makarieva, an atmospheric physicist, responded to this debate with a substack post titled "On the scientific essense of Dr. James Hansen's recent appeal." In it she agreed with Drs. Hansen and Karecha that many scientists were understating the degree of climate forcing but also shared her sense that many of the climate models in use, including Dr. Hansen's, erroneously ignored the major role of the biosphere in the climate destabilization that we are now experiencing. Which may, she argued, partially explain why none of the models predicted the heat anomaly of the 2023 - 2024 time period. Dr. Makarieva writes:
Why is this [i.e. accurate climate models] so important? Unless external causes of this recent temperature anomaly are identified, we may be dealing with a self-reinforcing process — for example, of reduced cloud cover causing more warming, this warming causing even less clouds and so forth until something truly ugly happens to our planet. But, if so, such a process could be started by many factors and does not necessarily need CO2 to kick off. For example, deforestation-induced reduction of evapotranspiration in the Amazon is associated with extreme heat events. This alone could trigger the warming that could then self-amplify via cloud (or some other) feedbacks.
Whether or not we have permanent self-reinforcing amplification happening with the climate now is being debated, partially thanks to new voices like Dr. Makarieva's, entering the field. What is clear, however, is that the fewer clouds, aerosols, snow cover, sea ice and also more invisible sources of water vapor (such produced by tropical forests and other natural ecosystems) the darker the earth is and the more sunlight gets through and heats the ground, the oceans and the air. This heating further impacts existing vegetation, ice sheets, permafrost and bodies of water negatively, which then also contribute more CO2, more fires, and further darkening of earth's surface. Earth's climate has been in a state of equilibrium for eons. Given what is happening with the climate now, it appears that it is leaving that state of equilibrium.
According to some reports, the Earth has "dimmed" by 0.5% in the past 25 years. We've known this and scientists have been able to track decreases in sea ice at the poles, a major factor in global warming. We're now seeing the climate effects of reductions in aerosols (due to the shipping industry trying to clean up their act and emit less aerosols), and we're seeing reduced cloud cover. The bottom line is that even just looking at cloud feedbacks, the more the climate warms, the fewer the clouds. The fewer the clouds, the more the planet warms. This feedback loop is enough to take us into very dangerous territory. Which is yet another reason why we want to prevent the loss of tropical forests, not just because of the CO2 impacts but because of the cloud and water vapor impacts. This feedback loop could explain why the rate of heating of the planet has increased beyond what was expected, even by scientists like Zeke Hausfather and James Hansen.
Dr. Hansen continues to urge immediate action and has proposed that "a multitude of actions are required within less than a decade to reduce and even reverse Earth’s energy imbalance for the sake of minimizing the enormous ongoing geoengineering of the planet; specifically, we will need to cool the planet to avoid consequences for young people that all people would find unconscionable."
References:
BBC, Tropical forests destroyed at fastest recorded rate last year, by Mark Poynting and Esme Stallard, May 20, 2025.
Columbia University, Climate Science, Awareness and Solutions, "Global Warming Has Accelerated: Are the United Nations and the Public Well-Informed?, published in Taylor & Francis, February 3, 2025 by James E. Hansen, Pushker Kharecha, Makiko Sato, George Tselioudis, Joseph Kelly, Susanne E. Bauer, Reto Ruedy, Eunbi Jeong, Qinjian Jin, Eric Rignot, Isabella Velicogna, Mark R. Schoeberl, Karina von Schuckmann, Joshua Amponsem, Junji Cao, Anton Keskinen, Jing Li, and Anni Pokela
Biotic Regulation and Biotic Pump Substack, "On the scientific essense of Dr. James Hansen's recent appeal." by Dr. Anatassia Makarieva, an atmospheric physicist, May 19, 2025.
Published by Valerie Gardner in Advanced Nuclear, Asset manager support, Brilliant thinkers, Carbon emissions, Climate change, Climate innovation fund, Climate mayhem, Construction costs, Energy abundance, Environmental support for nuclear, Extreme weather, Future of Energy, International support for nuclear, Investor activity, Land Use by Energy, LINKS, Nuclear competitiveness, Nuclear financing, Nuclear innovation, Nuclear maritime propulsion, Nuclear R&D, Philanthropic support for nuclear, Politicians supporting nuclear, Pro-nuclear campaign, Solving climate, Solving nuclear waste, US competitiveness, Venture capital support for nuclear, Zero emission energy
As we reported in a post titled "States vying to host nuclear development," most U.S. States—along with many countries—recognize that nuclear power is vital to every jurisdiction's ability to generate reliable and clean power and that demand for nuclear is going to grow. Accordingly, many U.S. States have begun efforts to attract nuclear developments and nuclear power developers so as to both gain the additional power being added and the economic development benefits of hosting some portion of this growing sector. Now that AI development has sent Big Tech out in search of locations to build new data centers, which require massive amounts of energy, the race to attract nuclear power has grown even fiercer. There are so many developments, it would not be practical to post each individual state's initiatives separately. Thus, we are using this page to try to provide current updates on each state's nuclear initiatives, listed alphabetically.
Arizona
Arizona, home to one of the country's largest nuclear power plants, lawmakers are considering a utility-backed bill to relax environmental regulations if a utility builds a reactor at the site of a large industrial power user or a retired coal-fired power plant..
California
Alone among the most populated, industrial and progressive U.S. states, California remains mired in antiquated antinuclear politics. Although there is a large fraction of advanced nuclear innovation happening at startups located in California, California’s moratorium on new nuclear plants will force these ventures to seek alternative states in which to build their technologies. California’s leadership has shown no interest in competing to win the race to attract all of the talent, federal funding, jobs and economic development that will accompany the growth of this innovative sector and, by all appearances, the state has now fallen behind Texas, Wyoming, Illinois, New York and even Connecticut.
But, there are signs of attitudinal shifts happening even in deep blue California. Both California’s progressive Governor, Gavin Newsom, who for years workd to force the retirement of Diablo Canyon, and the state’s legislature reversed their decisions at the last minute and delayed the closure of the nuclear facility for five more years. They recognized, if reluctantly, that the plant had reliably provided almost 20% of the state’s zero-emission power and 8% of its electricity for decades. Shutting it down would expose the state to dire and life-threatening power outages without the plant’s high capacity-factor reliability and highly differentiated, non-intermittent generation. It would also set back progress on the state’s climate goals.
Sadly, despite several attempts over the years by elected legislators to bring the state into competitive parity with the country and do away with its 49-year old nuclear moratorium, make exceptions for SMRs, and/or conduct feasibility studies about SMRs, these bills have not made it out of committee. Thus, the state appears poised to miss out on the energy revolution made possible by next-generation nuclear, even with many advanced nuclear ventures being located in California.
Connecticut
Connecticut has a state-wide ban but passed an exception in 2022 that allows more nuclear construction at the site of the state’s one operating nuclear power plant, the Millstone Power Station. This specifically allows Dominion Energy to build advanced nuclear at the Millstone site. Dominion has shown interest in SMRs and recently announced a deal with X-energy to build their advanced design, in partnership with Amazon.
Illinois
One of the largest nuclear generating states, Illinois produces 53% of its electricity (and 90% of its clean energy) from nuclear power, and recently passed HB 2473, lifting the state’s moratorium on building new nuclear reactors—but only for small modular reactors (SMRs) rated for 300 megawatts or less. This measure was signed by Gov. JB Pritzker, a Democrat.
Indiana
Indiana lawmakers passed legislation to let utilities more quickly seek reimbursement for the cost to build a modular reactor, undoing a decades-old prohibition designed to protect ratepayers from bloated, inefficient or, worse, aborted power projects.
Maine
Maine, which has not had an operating nuclear power plant since 1996, considered a bill to classify nuclear power as “clean,” to thus qualify it for carbon credits and other preferential treatment.
Maryland
Maryland joined the National Association of State Energy Officials’s Advanced Nuclear First Mover Initiative, or ANFMI, to develop supportive policies, coordinate with private stakeholders, and work toward unique procurement and financing options for nuclear energy projects. Meanwhile, lawmakers in Maryland are considering a bill that would include nuclear power in a new zero-emissions credit program, creating an additional revenue stream for nuclear projects there.
Michigan
Michigan has worked to protect and increase its nuclear power and sits at the forefront of resurgent state interest in nuclear energy. Michigan’s Democratic Governor, Gretchen Whitmer, worked to prevent the closure of the Palisades nuclear power plant. But, when a mechanical problem forced the plant’s sudden closure, the state legislature agreed to put $150 million toward the potential restart of Palisades, in what would be the US’ first-ever restart of a shuttered generating station. Under the Biden Administration’s Civil Nuclear Credit program, the plant subsequently received a $1.5 billion conditional loan commitment from the U.S. Department of Energy, to help fund the repairs and restart and potentially enable Holtec to build several SMRs on the site as well. Michigan lawmakers are also considering millions of dollars in incentives to develop and use the reactors, as well as train a nuclear industry workforce.
New York
New York has no statewide restriction but still has a narrow ban on new reactor development in the service territory of the Long Island Lighting Company, which covers Nassau, Suffolk and some of Queens counties. Although New York’s disgraced former governor, Andrew Cuomo, forced the premature closure of Indian Point which eliminated 80% of the then available clean energy for downstate New York, New York’s current Governor, Kathy Hochul appears to be bringing nuclear back. She announced the state’s largest and most ambitious initiative to tackle the climate crisis with a new master plan. This includes a commitment of $1 billion by the state and specifically includes NYSERDA’s Blueprint for Consideration of Advanced Nuclear Energy Technologies, which outlines a process for the inclusion of advanced nuclear in the state’s Master Plan consideration process. Additionally, New York State will co-lead a multi-state initiative to support nuclear refurbishment and new nuclear development. This seems to place New York State firmly in the race to attract next-generation nuclear developers. New York joined the National Association of State Energy Officials’s Advanced Nuclear First Mover Initiative, or ANFMI.
New York issued a request for information from “entities either already pursuing, or interested in pursuing, a potential role in advanced nuclear energy technology development” and an interim “blueprint” for nuclear power deployment as it prepares to release a more comprehensive nuclear “master plan”. Constellation Energy said that, with support from the New York State Energy Research and Development Authority, it would apply for a federal grant to seek an early site permit “for one or more advanced nuclear reactors” at its 1,907-MW Nine Mile Point Clean Energy Center near Oswego, New York.
Pennsylvania
Pennsylvania joined the National Association of State Energy Officials’s Advanced Nuclear First Mover Initiative, or ANFMI, to develop supportive policies, coordinate with private stakeholders, and work toward unique procurement and financing options for nuclear energy projects.
Tennessee
Tennessee Gov. Bill Lee proposed allocating more than $90 million to help subsidize a Tennessee Valley Authority project to install several small reactors, boost research and attract nuclear tech firms. As a long-time proponent of the TVA’s nuclear project, Lee also launched Tennessee’s Nuclear Energy Fund in 2023, designed to attract a supply chain, including a multibillion-dollar uranium enrichment plant billed as the state’s biggest-ever industrial investment.
Texas
Texas prides itself on being the “energy capital of the world.” It is setting itself up to become the “epicenter” for deployment of advanced nuclear and has taken some impressive steps to achieve this goal. In the aftermath of Winter Storm Uri, which resulted in extended power outages that caused many cold-related fatalities, an industry group got together to form the Texas Nuclear Alliance, dedicated to the advancement of nuclear technology in Texas and a mission to make Texas the “Nuclear Capital of the World.” TNA’s underlying premise was that, to meet the need for low-carbon and reliable energy, Texas could not afford to turn its back on “clean, safe, reliable and secure” nuclear energy.
By late 2023, Texas Governor, Greg Abbott, directed the Texas Public Utility Commission to establish a working group to study advanced nuclear. A year later, in November 2024, the Governor and the PUCT announced the release of the Texas Advanced Nuclear Reactor Working Group’s final report on Texas’ plan to build a world-leading advanced nuclear power industry. The report’s multiple goals sought to enhance electric reliability and energy security, promote economic development, and unleash new opportunities for the growing Texas workforce. In commenting on the PUC’s report, Governor Abbott said:
“Texas is the energy capital of the world, and we are ready to be No. 1 in advanced nuclear power. By utilizing advanced nuclear energy, Texas will enhance the reliability of the state grid and provide affordable, dispatchable power to Texans across the state. As we build an advanced nuclear industry in our great state, we will ensure Texas remains a leader in energy and strengthen the Texas grid to meet the demands of our growing state.”
If you click on the report image on the right, it takes you directly to the report package, which is a thing of beauty. The Executive Summary finds five key benefits to making Texas the epicenter of advanced nuclear in the U.S.: 1) Enhance energy security; 2) Improve grid reliability; 3) Expand economic development opportunities; 4) Capture first-in-nation advantages that bring jobs, revenue and industrial growth; and 5) Capture international trade opportunities as the world works to triple the amount of nuclear available by 2050.
How will Texas take this lead? By doing what Texas does best: cutting “red tape” and establishing major “incentives” to “attract investments,” accelerate advanced nuclear deployments and overcome regulatory hurdles. It’s a very good plan . . . and far exceeds efforts by any other state to attract advanced nuclear development to itself.
Best of all, Texas isn’t merely posturing. The Texas Nuclear Alliance has partnered with the Texas A&M University System (TAMUS, which boasts eleven universities, eight agencies and an enormous 2100 acre parcel of land called the Rellis Campus devoted to supporting technology innovation) and announced that they have selected four advanced nuclear ventures to build their own advanced reactor at Texas A&M. These companies, called TNA Founding Members, include: Kairos Power, Natura Resources, Terrestrial Energy and Aalo Atomics. These companies responded to an RFP in the summer of 2024 to bring their designs to the Rellis campus and were accepted. While there are unknowns about what this selection means for these companies, solving the siting issue can provide a significant advantage in the highly competitive race to be the first to deploy. [Click here to see how beautifully Texas A&M promotes the Rellis campus.]
Utah
Utah Gov. Spencer Cox announced “Operation Gigawatt” to double the state’s electricity generation in a decade. He wants to spend $20 million to prepare sites for nuclear. State Senate President J. Stuart Adams told colleagues when he opened the chamber’s 2025 session that Utah needs to be the “nation’s nuclear hub.”
Virginia
Virginia’s recent pro-nuclear moves include state funding for an energy “career cluster” and a state-supported energy lab that help enable deployment of advanced nuclear reactors near former coal mines. These efforts are designed to attract workers, jobs and investments by companies in the growing advanced nuclear sector, which is poised to begin building SMRs at the country’s already shuttered and retiring coal plants. Dominion Energy issued a request for proposals for a possible small modular reactor deployment at its 1,892-MW North Anna Power Station and subsequently announced a memorandum of understanding with Amazon to support the Virginia project. Virginia joined the National Association of State Energy Officials’s Advanced Nuclear First Mover Initiative, or ANFMI, a regional initiative.
West Virginia
West Virginia joined the National Association of State Energy Officials’s Advanced Nuclear First Mover Initiative, or ANFMI, to develop supportive policies, coordinate with private stakeholders, and work toward unique procurement and financing options for nuclear energy projects.
Wisconsin
In Wisconsin, several lawmakers introduced a resolution calling on the Legislature to publicly support nuclear power and fusion energy. They intend that the state, in passing the resolution, makes what could be deemed a formal declaration that Wisconsin is open for nuclear industry business.
Wyoming
Wyoming, seen as an “early mover,” is one state that began laying the groundwork to attract and build next-generation nuclear prior to 2020, when Republican Gov. Mark Gordon, signed a bill forbidding coal plants to close but allowing small modular reactor capacity to replace the coal generation capacity. Subsequent legislation in 2022 and 2023 provided regulatory streamlining for advanced reactor deployment and authorized the state to match private funds up to $150 million. These actions helped the state win over TerraPower, the advanced nuclear venture owned by Bill Gates, which is now building infrastructure for what may be the first advanced nuclear power plant near the site of a retiring coal-fired power plant, in Kemmerer, Wyoming. It helped Wyoming a lot that Bill Gates was then close friends with Warren Buffet whose Wyoming-based company, PacifiCorp, owns many struggling coal plants and so found a site they were willing to let TerraPower use. Wyoming joined the National Association of State Energy Officials’s Advanced Nuclear First Mover Initiative, or ANFMI, to develop supportive policies, coordinate with private stakeholders, and work toward unique procurement and financing options for nuclear energy projects.
[Note, we endeavor to keep this article updated with more recent information.]
Sources
- Office of the Texas Governor | Greg Abbott, Texas Leads As Energy Capital Of The World In 2024, December 27, 2024.
- Texas Nuclear Alliance, Texas Nuclear Alliance Members Selected to Build Nuclear Reactors at Texas A&M University System’s RELLIS Campus, press release of 2/4/25 by the Texas Nuclear Alliance and Time to Build. (See video of the announcement.)
- Texas Advanced Nuclear Reactor Working Group, Deplying a World-Renowned Nuclear Industry in Texas: Considerations and Recommendations for Action, November 18, 2024.
- DOE, Office of Nuclear Energy, What is a Nuclear Moratorium? Sept. 20, 2024
- Governor Kathy Hochul, Governor Hochul Commits More Than $1 Billion to Tackle the Climate Crisis – the Single Largest Climate Investment in New York’s History, January 14, 2025.
- CALMatters, Artificial intelligence is bringing nuclear power back from the dead — maybe even in California, by Alex Shultz, January 30, 2025.
- NYSERDA, Blueprint for Consideration of Advanced Nuclear Energy Technologies, January 2025
- LexisNexis, States Take Another Look at Nuclear Power to Combat Climate Change, Dec. 17, 2023.
- Associated Press, Majority of US states pursue nuclear power for emission cuts, by Jennifer McDermott, Jan. 18, 2022.
- Utility Dive, As states increasingly look to advanced nuclear, Wyoming, Virginia and Michigan lead the way, by Brian Martucci, April 17, 2024.
- Stateline, Federal money could supercharge state efforts to preserve nuclear power, by Alex Brown, February 12, 2024.
- Hannah Ritchie, Data Explorer: US State-by-State Electricity Sources, updated in 2025.
- Wisconsin Public Radio, 2 GOP state lawmakers pushing to advance nuclear energy in Wisconsin, by Joe Schultz, Feb. 13, 2025
- Seattle Times, New wave of smaller, cheaper nuclear reactors sends US states racing to attract the industry, by Marc Levy, Mar. 28, 2025
- UtilityDive, As offshore wind struggles, is advanced nuclear a viable Plan B for Eastern states? by Brian Martucci, March 27, 2025
Published by Nucleation Capital in Advanced Nuclear, Air pollution, Climate change, Climate innovation fund, Construction costs, Energy abundance, Energy transition, Fission, Future of Energy, Government support, Land Use by Energy, NEWS
Nucleation Capital Completes its Third Year!
Issues a report on the growing demand, the status of Nucleation Fund I, plans for Fund II and portfolio updates
Nucleation issued its Three Year Report to all Limited Partners (LPs) of the fund in mid-October, following the completion of three full years of investing at the end of Q2-2024.
The report covered the state of the current market, with the recent slate of high-profile power purchase announcements, a review of recent major nuclear purchase announcements by major technology companies, as well as a run-down of key events of the prior three years heralding the current inflection point in the market. Additionally, Nucleation provided its assessment of what is coming down the pipeline for investors in both energy and carbon management demand.
The report further shared more details about Nucleation's plans and strategies for its three year-old evergreen Fund I and for its upcoming, traditional Fund II. Lastly, Nucleation provided detailed and confidential updates on the progress made and current status of each of its twelve Fund I portfolio ventures.
REQUEST A COPY
If you are interested in learning more about either Fund I, our low-cost evergreen fund, now in its fourth year, or our upcoming traditional Fund II, click here to request a copy of our Three Year Report Overview.
Published by Valerie Gardner in Advanced Nuclear, Advanced Nuclear Customers, Carbon emissions, Carbon markets, Climate change, Climate innovation fund, Corporate decarbonization, Energy abundance, Energy transition, Fission, Future of Energy, Investor activity, NEWS, Nuclear competitiveness, Nuclear innovation, Nucleation communications, Solving climate, Venture capital support for nuclear, Zero emission energy
By Valerie Gardner, Managing Partner
ESG investing is the largest and most profound global trend happening in the capital markets. Its popularity points to the global recognition that investors should and do have an important role to play in helping to solve environmental, social and other issues that have put the planet on a bad trajectory. In fact, no business can survive without investor support so businesses do care to meet investors' demands. Yet, as structured, ESG is not working to fulfill investors' true underlying needs or produce measurable objectives. The good news: there is an easy fix, when we start with "C," assessing climate impacts.
Like many things today, an initiative based upon a meaningful and important purpose, has become mired in controversy. Like the Socially Responsible Investing (SRI) movement that preceded it, ESG (an acronym for rating and selecting companies based upon their environmental, social and governance performance) has emerged to enable investors to focus their investments on companies that are taking care to behave more morally and responsibly vis-a-vis the environment, their employees, their shareholders, their suppliers, their communities and the climate. Many of these types of good corporate behaviors previously went unreported. What's become clear to investors is that short-term profiteering by managers may appear to be beneficial for shareholders but often may not be. It can conflict with what we know are looming issues which need action. Thus, sometimes taking a longer-term view and making corresponding sacrifices or investments that actually reduce overall risks can vastly improve longer-term enterprise value.
ESG has emerged to identify, elevate and reward companies which invest in doing what is right, even if such actions reduce returns in the short-term. It is intended to broaden the metrics on which corporations report information, so investors can make better informed decisions and invest in companies taking ethical actions, treating employees, suppliers and their communities fairly and protecting the environment—much of which costs more but which can reduce risks and other future costs, including litigation, public opposition or climate impacts.
While collecting data to make this type of assessment might seem uncontroversial, traditionally company management was required to focus on meeting only one goal: maximizing shareholder value. Because actions that affect long term enterprise value are often difficult to quantify, management reports have traditionally focused on easier t omeasure financial metrics like Price/Earnings ratios and quarterly profit trends. Deviating from the objective of maximizing per share profits could and often did result in shareholder lawsuits, if management took even smart and common sense approaches which reflected a community value, but which did not clearly improve shareholder value.
Fortunately, in 2019, under the leadership of Jamie Dimon, the Business Roundtable officially changed their statement of purpose and so businesses now broadly recognize that they are also accountable to their employees, suppliers and communities — constituents whose needs and actions can also impact the bottom line — but there is no consensus as to exactly how much or how little is enough and companies employ widely diverging approaches. ESG is now a way that investors can better discern the differences and reward companies that are acting responsibly on environmental, social and governance issues. Unfortunately, it is not working very well.
What ESG Currently Is
The Harvard Law School Forum on Corporate Governance published an article entitled ESG Ratings: A Compass without Direction which aptly summarizes the main issues with ESG as it currently is. The authors describe their findings as follows: "We find that while ESG ratings providers may convey important insights into the nonfinancial impact of companies, significant shortcomings exist in their objectives, methodologies, and incentives which detract from the informativeness of their assessments."
Critically, there's a significant dichotomy between what people commonly think ESG is supposed to indicate and what it actually indicates. Most people believe that an ESG score reflects a company's positive impact on the environment and stakeholders beyond its shareholders, such as employees, customers, suppliers, and local communities as well as the environment—a type of "Doing Good" metric which would tend to produce more shareholder value in the long run. In actuality, most ESG raters are assessing a company for the existence or absence of risk factors that could impact the future value of the company, such as the risk of discrimination in hiring or the risk of climate change on the supply chain. This is more of a "Risk Reduction" approach to data collection.
From an investment manager point of view, any time you can get meaningful information about a company's actions and potential future value, you are generally willing to pay for that—especially when your clients are clamoring for more sustainable investment options and are willing to pay more. Thus, there are now a plethora of third-party ESG rating services working to provide ESG data for a fee and a very large majority of impact-focused investment professionals are using these services to provide more options for clients. But, sadly, the entire space, which is still in its infancy, is chaotic and incoherent.
Studies show very low correlations across ESG ratings providers in total scores as well as across the three distinct components of "E," "S," and "G." Not only isn't there agreement about what an ESG score reflects, there is no standardization in the types of data collected or used and no consistency to the methodologies of collecting, assessing or prioritizing within or across categories. Thus, not only are ESG ratings badly correlated with environmental and social outcomes, the relationship between ESG ratings and financial performance is also uncertain. Those investing in ESG-type funds will typically pay more in fees for having accessed ESG data but they will generally get just equivalent or worse performance.
High and rising demand for ESG information has caused ESG-type rating services and funds to become profit centers, even as the quality, consistency and efficacy of the ratings has failed to provide meaningful results. At the moment, in addition to all of the inherent confusion as to what data matters, how to collect it, how to assess it and then how combine it with many other data points into a meaningful score, there is also the problem of greenwashing. Greenwashing is the deliberate efforts by some companies to game the system and try to obtain better ratings and scores than they probably deserve.
Which points to a growing problem in the ESG space. Companies control what data they will share with which rating groups, creating an inherent ability for companies to influence their scores by refusing to give their data to groups that don't rate them highly. This has rendered the existing ESG industry scores almost meaningless, since many of these raters are dependent upon the good will with the companies they are rating to get the data they need.
There is no better example how badly ESG is doing for guiding investors to more ethical and sustainable companies than when the S&P Sustainability Index did its rebalancing in May 2022. At that juncture, the S&P ESG team ejected Tesla (the largest EV car maker and one of the most successful climate companies on the planet) from the Index but welcomed ExxonMobil (a renowned climate villain), prompting Elon Musk to call the S&P Sustainability Index a "scam."
This decision caused a broader uproar within the sector and forced Senior Director and Head of ESG Indices Margaret Dorn to publish an explanation. Not only was this shift a climate and ESG travesty but, in fact, the S&P's "delicate balancing act" revealed that ESG raters and ratings are meaningless for a whole host of reasons, predominantly because there is just too much data, too much manipulation, and not enough understanding of what really matters. ESG raters appear to be so lost in the trees, they have effectively lost sight of the forest, namely the critical issue that matters the most to investors: climate change.
What ESG Isn't
Investors are looking to ESG ratings to enable them to invest in companies that are doing better on a wide range of areas but, most critically, are environmentally responsible, especially around reducing carbon emissions. For many, this means working to provide solutions along the lines outlined by the United Nationa's Sustainable Development Goals. ESG investors care to invest in companies which improve global sustainability and solve climate change.
There are plenty of dire human, environmental and governance problems—you could name dozens—but none that threaten to seriously and even permanently disrupt the planet, human society and economic order as much climate change, the forced heating of our climate caused by burning fossil fuels. This crisis dwarfs everything.
So, while it may be troubling that there are reports of a toxic "bro" culture at Tesla, every single day, Tesla ships electric vehicles that enable people to stop purchasing and burning fossil fuels, which is the primary driver of climate change. In stark contrast, every single day ExxonMobil strives to greenwash their aspiration to keep selling more and more fossil fuels for as long as they possibly can—threatening not just human survival but that of all species and potentially our well-functioning societies, which could effectively wipe out the concept of wealth as we know it.
Shockingly, ESG as it is currently designed doesn't enable either the experts or investors to clearly assess companies on the single most important metric of sustainable performance—whether the company contributes to climate change or if they provide solutions to climate change. The average ESG investor, however, thinks that this is primarily what ESG does. Clearly, if ExxonMobil is rated highly but Tesla is not, ESG is not just meaningless, it is actually misleading for the average impact investor.
Fortunately, in order to fix this problem, ESG doesn't need to change that much, it just needs to make a small, relatively easy modification, which will then substantially improve its effectiveness and performance and begin to have a truly beneficial impact on humanity's ability to invest "sustainability." I propose a very basic approach for doing that below.
ESG Can Easily Be Fixed: Start all ratings with a "C" assessment
(Click to enlarge.)
As those concerned about what's happening with our climate saw, 2023 experienced a succession of seven record-shattering and "gobsmackingly bananas" (in the words of two climate scientists) hottest months on record. Not surprisingly, 2023 was also a record-breaker for climate disasters in the U.S. and around the globe, which have cost humanity billions annually. The bill for extreme climate disasters in the U.S. since 1980 now totals over $2 trillion and growing. Hundreds of millions of people are already being affected and/or displaced by the extreme weather events resulting from burning fossil fuels and allowing the CO2 pollution to escape into the atmosphere. These climate events are impacting the global economy, national security, geopolitics, businesses and politics in a range of ways but especially by increasing over systems risk.
(Click to enlarge)
Not surprisingly, at COP 28 in December, 198 nations gathered in the United Arab Emirates and finally agreed that we need to "transition away from fossil fuels." Though fossil fuel exporting nations like the UAE, Saudi Arabia, Russia and Iraq fought hard against adopting the specific words "phasing out fossil fuels," this is a pointless distinction, since it is abundantly clear that humanity needs to stop using fossil fuels as fast as humanly possible, whether transitioned or phased out. The climate is so bad, even Middle Eastern countries, whose primary source of revenue is fossil fuels, finally acknowledged what we've known for a very long time: only by eliminating the use of fossil fuels will we start to turn the tide against our worsening climate change and the dire ecologic and economic crisis that it threatens.
Against this backdrop and in light of the fact that ESG analyses and ratings are clearly still in "beta," we believe that ESG raters could make a very minor modification and start to have a much more significant impact. Simply by commencing vetting with one very simple sorting action, they would improve the coherence of ESG ratings by a lot. Prior to applying the rankings from hundreds of data points amassed regarding a plethora of corporate actions, ESG needs to divvy up the universe of companies into three distinct buckets: Climate Villains, Climate Neutral companies and Climate Heroes. This is a very easy distinction to make. Climate villains are those that are actively extracting, refining or selling virgin fossil fuel products or related services. Climate neutral companies are those that doing other business and are merely energy customers. Climate heroes are those companies which are actively developing and/or delivering key solutions to climate change (unrelated to ongoing fossil fuels operations), like low-carbon and carbon-free energy such as nuclear power, hydropower, wind, solar, geothermal and wave power; providing electrification support, such as with electric vehicles, heat pumps, charging stations and energy efficiency; and lastly carbon management, including carbon capture, carbon utilization and carbon sequestration (so long as unrelated to fossil fuel operations).
Once this vetting process has been done, then all of the current ESG metrics can then be assessed for more comparative performance relative to a company's other environmental, social and governance risks. But the top line assessment will easily enable every ESG-rated fund to exclude all Climate Villains. ESG funds will then be able to select their choices of best-performing companies from the other two categories for a mix of risk and return characteristics and use whatever type of analyses they wish. Investors will then have a very clear sense of what the composition of the fund is, across these three categories. Companies whose business is actively extracting, refining, distributing or selling fossil fuel products or services that cause climate change will likely still be included in standard, non-ESG funds, of course, but even these funds would easily be assessed for their climate impacts. Such funds could also be assessed for their ESG conformance, relative to other similar funds. But with this big bucket approach, no company or fund would be able to manipulate their "S" or "G" ratings in such a way as to feign that they are environmentally sustainable or acting responsibly relative to climate risk or sustainable development goals, when they are not, which is what impact investors mostly care about.
Summary
Despite inconsistencies in and controversy over ESG, we believe that demand for ESG research and investment vehicles remains strong largely because of concerns about climate change. Investors demand greater clarity about which businesses have more sustainable and ethical business approaches and want to own those and not companies shirking their responsibilities to future generations. Although ESG is in a nascent and chaotic state and not currently delivering the data ESG investors really need, a simple modification will be enough to ensure that more investor capital is directed into sustainable ventures.
Here's how we think it can work.
Prior to running the current slate of ESG assessments, each company should be given a climate score: "C Minus" is given to "Climate Villains," companies whose products and services are contributing to climate change, namely the fossil fuel extraction, refinement, distribution and sales companies that are responsible for contributing millions of tons of carbon emissions. Companies that not involved with climate-impacting businesses (such as those in healthcare, education, textiles, manufacturing, etc.) would be deemed "Climate Neutral" and get a straight "C" since their business is not directly causing climate change other than through their energy usages (or idiosyncratic emissions). Lastly, the final category are the Climate Heroes who get rated "C+" as they are actively working to solve humanity's need for clean energy and/or carbon services, which seek to restore the natural carbon balance in the atmosphere.
Once these very broad but clear buckets are determined, ESG ratings can be applied to provide more nuanced distinctions between the companies in each of the three buckets, based upon their treatment of employees, governance policies, whether or not they take care of their toxic emissions or waste products, whether they protect water sheds or try to use clean energy for their operations, etc. In this way, Tesla will be in the C+ bucket with other climate heroes and rated in comparison to other electric car companies but will never be in the same climate bucket as disgraced Climate Villain, ExxonMobil, which must try to out-maneuver other fossil fuels purveyors stuck in the C- bucket.
If this simple change were implemented, ESG funds could showcase their percentage of holdings that are C+ versus C, and ESG would finally become a highly effective tool for enabling investors to invest towards increasing the sustainability of our planet.
References
Columbia University, Climate Science & Solutions, Groundhog Day. Another Gobsmackingly Bananas Month. What's Up?, by James Hansen, Makiko Sato, Pushker Kharecha, January 4, 2023, the title is taken from a tweet by Zeke Hausfather.
NOAA National Centers for Environmental Information (NCEI) U.S. Billion-Dollar Weather and Climate Disasters (2023). DOI: 10.25921/stkw-7w73.
Fortune, Musk claims S&P ‘lost their integrity’ after Tesla gets booted from sustainability index while Exxon is included, by Christiaan Hetzner, May 18, 2022.
New York TImes, Sustainability Index Drops Tesla, Prompting Insult from Musk, By Jack Ewing and Stephen Gandel, May 18, 2022.
4. The (Re)Balancing Act of the S&P 500 ESG Index, by Margaret Dorn, Senior Director, Head of ESG Indices, North America, S&P Dow Jones Indices, May 17, 2022.
5. Harvard Law School Forum on Corporate Governance, ESG Ratings: A Compass without Direction, by Brian Tayan, a researcher with the Corporate Governance Research Initiative at Stanford Graduate School of Business, David Larcker, Professor of Accounting at Stanford Graduate School of Business; Edward Watts, Assistant Professor of Accounting at Yale School of Management; and Lukasz Pomorski, Lecturer at Yale School of Management, August 24, 2022.
Published by Valerie Gardner in Advanced Nuclear, Carbon emissions, Carbon markets, Carbon negative, Climate change, Climate innovation fund, Climate mayhem, Climate policy, Energy abundance, Future of Energy, Investor activity, Macro Energy Systems, NEWS, Reduced ecosystem impacts, Solving climate
Dr. James Hansen's year-end update contains an admonishment right in the title, "A Miracle Will Occur" Is Not Sensible Climate Policy." Those who have followed his work and his typically well-tempered writing will recognize this as a very strong indictment of what we've not done to date to address climate change. This is, for this mild-mannered scientist, the equivalent of "Hey Guys, Get your S _ _ T together!"
Dr. Hansen proceeds to call "bunk" on the assertions from both the COP 28 Chairman and the UN Secretary General who imply that the goal of keeping temperature rise to below 1.5°C is still feasible. According to Dr. Hansen, the already banked warming will take us beyond 2.0°C "if policy is limited to emission reductions and plausible CO2 removal." In other words, he makes it clear that this is now merely wishful thinking and does not reflect a realistic understanding of the way that emissions released create future warming, which he calls "Global Warming in the Pipeline" and describes in the linked paper.
The only realistic approach is to take true climate analysis that is informed by knowledge of the warming "forcing" effects and to use that to drive decisions about policy options. If we can possibly use the next several years to define and commence more effective policies and courses of action, then there is a modicum of a chance that we can still save the future for our young people. If this isn't a bomb of an alarm, it would be hard to say what else would be, especially because the IPCC has made it very clear that major ecosystems, starting with coral reefs and then, therefore, all marine life, will be threatened with substantial (90%) collapse by 1.5°C and with 100% by 2°C.
Unfortunately, climate science is complicated and most people don't have a good understanding of the "human-made forcings that are driving Earth's climate away from the relatively stable climate of the Holocene (approximately the past 10,000 years.)" Even if they could grasp the implications about climate science from the graphs that Dr. Hansen and his team provide, very few are even reading Hansen's work. These graphs are very scary but clearly they are not being used as the basis for policy discussions by either politicians, government agencies (like the EPA), or by leading environmental groups and that is likely the primary reason why many people are still arguing about renewables versus nuclear power, thinking they have a certain luxury of time, rather than saying "Renewables and nuclear, YES!"
For his part, Dr. Hansen doesn't make it as easy as he could for those with less expertise in climate science. He spends a lot of effort discussing two major climate forcings: greenhouse gases (GHGs) and aerosols (fine airborne particles), which in fact have opposing forcings. But then goes into detail on many other related forcings. This level of detail may provide a more scientifically accurate picture of what is going on but it makes for much sparser readership. Clearly, there are many different kinds of feedback loops, including how the aerosols impact cloud formation, albedo effects and also the way the ocean absorbs a considerable amount of the warming that is happening to our climate. It's important that he understands these effects but it takes considerable sifting work to get to the point that what it all adds up to is that there is much more warming that has occurred than what we are actually now experiencing, so in fact, the effect of warming will be accelerate and we're now seeing this.
Even for those of us who finding climate science fascinating, this 14-page paper is incredibly dense and gets relatively badly bogged down with details on things like cloud forcings, albedo changes, reviewing differences between expected temperatures and real world measurements, catching up with a 40-year old mystery having to do with the last glacial maximum and describing the impacts of an "experiment" that occurred when the International Maritime Organization limited sulfur content in ship fuel and the variability introduced by El Nino and La Nina events. The bottom line of quite extensive discussion that few will wade through, is that global warming is now accelerating. This is very important but definitely buried. The key graphic of the whole paper depicts this acceleration.
On page 7, we finally get to the implications of global warming acceleration. As shown in the above graph, were the warming happening at a steady rate, we'd be on the green dotted line. Instead, we are veering off into the yellow zone of accelerated warming, which means that we'll "exceed the 1.5°C mark within the next few months and reach a level far above 1.5C by May 2024."
Hansen, while recognizing that there could be some up and down based upon El Nino and La Nina effects, believes that the baked in energy imbalance already "in the pipeline" means that it does not serve anybody's interests to "wait a decade to declare that the 1.5°C limit has been breached." In summary, Hansen argues that, "unless purposeful actions are taken to reduce our present extraordinary planetary energy imbalance," the 2°C global warming limit will also be breached.
By its very nature of having a delayed, baked-in response, human-made climate change makes this an intergenerational issue. What we have done in the past is already having consequences but what we do today and going forward will mostly impact the next generation for better or worse.
To his credit, Hansen dives yet again into Climate Policy, unlike most other scientists. This has been long been a huge source of frustration for him and you can almost see him stomping on his own hat, in his anger and impatience with the political processes that have thwarted action. First he reviews just what makes solving cilmate extra hard, starting with the fact that the principal source of GHGs is fossil fuels, which are in his words "extremely beneficial to humanity." They have raised starndards of living worldwide and still provide 80% of the world's energy. "Fossil fuels are readily available, so the world will not give up their benefits without equal or better alternatives." Because of this conundrum, we are near a point of no return, where extreme consequences can spiral out of humanity's control.
Dr. Hansen has been a first-hand witness to humanity's failure to act over the last 35 years or so and his exasperation with that and his desperation to communicate to those in power about our increasingly limited options is abundantly clear. He's been advising governments around the world on possible approaches with little of the urgent response that is warranted. He delves into some of these details but then finally hones on in the three actions that are required to successfully address climate and achieve the bright future we desire for our children.
The first is a near-global carbon tax or fee. It is the sine qua non required to address the "tragedy of the commons" problem" wherein fossil fuels waste products can be dumpted in the atmosphere for free. There can be a range of approaches, yet something that penalizes those dumping GHGs is required to be enacted globally. A corollary to a carbon fee is a "clean energy portfolio standard," with government policies that are far more supportive of nuclear power.
The second major policy requirement, is the need for the West to cooperate with and support the clean energy needs of emerging and developing nations. There are economic imbalances with developed nations having caused the past emissions but emerging nations increasingly being the driver of future emissions:
The clear need is to replace the world’s huge fossil fuel energy system with clean energies,
which likely would include a combination of “renewables” and nuclear power. Even if the
renewables provide most of the energy, engineering and economic analyses indicate that
global nuclear power probably needs to increase by a factor of 2-4 to provide baseload power
to complement intermittent renewable energy, especially given growing demands of China,
India and other emerging economies. The scale of China’s energy needs makes it feasible to drive down the costs of renewables and nuclear power below the cost of fossil fuels.
Lastly, Dr. Hansen proposes that "a multitude of actions are required within less than a decade to reduce and even reverse Earth’s energy imbalance for the sake of minimizing the enormous ongoing geoengineering of the planet; specifically, we will need to cool the planet to avoid consequences for young people that all people would find unconscionable."
References:
"A Miracle Will Occur" is Not Sensible Climate Policy, by James Hansen, Pushker Kharecha, Makiko Sato, Columbia University, Earth Insitute's Climate Science & Solutions, December 7, 2023.
Columbia University, Climate Science, Awareness and Solutions Newsletter, "Groundhog Day. Another Gobsmackingly Bananas Month. What’s Up?, sent on January 4, 2024 from the same team.
"Dire Warnings from Dr. Hansen and Team, by Valerie Gardner, Nucleation Capital, Dec. 22, 2023.
Published by Nucleation Capital in Advanced Nuclear, Asset manager support, Brilliant thinkers, Carbon emissions, Climate change, Climate innovation fund, Climate mayhem, Construction costs, Energy abundance, Environmental support for nuclear, Extreme weather, Future of Energy, International support for nuclear, Investor activity, Land Use by Energy, LINKS, Nuclear competitiveness, Nuclear financing, Nuclear innovation, Nuclear maritime propulsion, Nuclear R&D, Philanthropic support for nuclear, Politicians supporting nuclear, Pro-nuclear campaign, Solving climate, Solving nuclear waste, US competitiveness, Venture capital support for nuclear, Zero emission energy
Why did the Carbon Free Power Project get cancelled? What does that mean for NuScale?
By Rod Adams, Nov. 10, 2023
Cross-posted from our related blog, Atomic Insights
I’ll start with a disclosure. I’m still long on NuScale in my personal portfolio and have no intention of changing that position in the near future. I believe that the company has a good product and excellent potential for growth. The image above with Jose Reyes and me is from a visit I paid to the NuScale test loop in October 2014.
Yesterday (Nov 8, 2023), an expected shoe dropped. NuScale and UAMPS (Utah Association of Municipal Power Systems) announced that they had decided to abandon their Carbon Free Power Project. The press release stated, “Despite significant efforts by both parties to advance the CFPP, it appears unlikely that the project will have enough subscription to continue toward deployment.”
A chorus of commentary has erupted on social media. Some are cheers from the usual suspects who have never met a nuclear reactor that they like. Others are from people who ardently support different designs that range from different water reactors to gas-cooled, molten salt or liquid metal reactors that don’t use water cooling and moderation.
Some believe that the decision proves that NuScale Power Modules are hopelessly uneconomic and that the CFPP cancellation proves that NuScale is on shaky grounds as a company. Self-admitted short sellers are doing everything they can to undermine investor confidence so that the company stock price falls quickly and profitably for those betting on that behavior.
My conclusions from the project cancellation are different. There is no doubt that a smooth first-of-a-kind demonstration of a 6-12 unit NuScale power plant would have been better for the company’s prospects in the short term. That result would have also helped to increase interest in new nuclear power projects and would have increased investor FOMO (fear of missing out.)
As a venture capitalist helping to manage a fund that is focused on advanced nuclear energy as a major, undervalued tool for the energy transition from high carbon fossil fuel combustion to ultra low carbon energy sources, that result would have been a welcome reinforcement of our investment thesis.
Competitive headwinds fighting Carbon Free Power Project
During the past few years, however, the prospects for success for the CFPP have repeatedly dimmed to the point where its cancellation was readily foreseeable. The initial 12-unit power plant was scaled down to a 6-unit facility. Individual members of the UAMPS association pulled out as it became ever clearer that a new, first of a kind nuclear plant built in the remote Idaho desert would produce power that was measurably more expensive than the low priced mix of coal, natural gas, hydro and wind they were used to.
That cost disadvantage only grew as it became less and less likely that there would ever be a price on carbon in the states UAMPS serves. Rising interest rates also reduced the economic viability of capital-intensive power plants compared to established, depreciated plants burning cheap local coal, low capital cost plants burning natural gas from nearby places like North Dakota or onshore wind located in sparsely-populated windy plains near mountain ranges.
As coal demand falls throughout the US as a result of changing air pollution regulations, increased production from natural gas, solar and wind and continued excellent performance by existing nuclear plants, coal prices soften. The long term prospect is that they will remain affordable and perhaps decline considerably, especially in places that are close to established mines. UAMPS member power systems have ready access to local coal sources.
The UAMPS-served areas are close to productive oil shale formations that contain substantial quantities of associated natural gas. Sometimes North Dakota gas is almost given away – even in the dead of winter – because it is an annoying byproduct of oil production. Associated gas is still flared – burned without serving any customers – for safety reasons. Regulators are increasingly enacting rules that discourage the practice. There are also financial incentive programs that encourage operators to find customers that will pay something.
UAMPS members also benefit from their favorable wind locations. They have wide open spaces and good wind associated with nearby mountains. On-shore wind turbines are well proven and numerous developers have cost effective processes and experienced installation teams. The Inflation Reduction Act provides long term certainty for clean energy subsidies, ensuring that the power prices are consumer friendly. It also opens new avenues for non profit utilities to directly benefit from tax credit programs. A nuclear power project like the CFPP would be eligible for the same subsidy level as other clean energy sources but the tax credit programs in the IRA start paying real money only after projects are completed. A wind project can be finished in just a year or two in places where there isn’t much opposition. Earlier monetary flows are more valuable than later flows.
Even if they are led by people who would like to decarbonize, municipal power systems have a mandate to provide the most cost-effective power possible within the given constraints. They have access to relatively low cost, tax exempt debt, but bond issues needed to access that debt capability are often tenaciously debated, political choices. The interest rates paid may be lower than commercial rates, but rates for new debt are still linked to those paid in the rest of the borrowing market. Rising rates affect all borrowers.
Munis have no access to capital markets where investors have more understanding and appetite for a certain amount of financial risk. It is highly unlikely that they could convince their customers to pay catalytic prices for power from new technology with significant room for growth.
in summary, economic conditions for the Carbon Free Power Project have been deteriorating for several years. The total expenditures associated with that project have not been publicly released, but the amount spent is nowhere near the amount of money that was earmarked. UAMPS only submitted an application for “Limited Work Authorization” to the NRC in August of 2023 and it has only been a few weeks since the NRC accepted that application for review. No dirt has been moved at the site, other than that needed to conduct environmental impact studies.
Where does NuScale go from here?
This commentary is not supported by any direct communication with NuScale. It is based on publicly available news and announcements.
The CFPP was an important project for NuScale, but it is not the only sale that the company is working on. UAMPS is not the only customer attracted by a passively cooled, light water reactor using established fuel forms, materials and chemistry refined through many decades of operation in large fleets of nuclear power plants.
NuScale’s power modules have been issued a design certification at a time when none of the alternative choices have submitted an application for review. Submission is needed to start a regulatory calendar that moves at an excruciatingly slow pace. Though we hope the next review will be quicker, it took more than six years from the time NuScale submitted its Design Certification Application until the 5-member commission issued the final document. (Dec 31, 2016 – Feb 21, 2023)
According to Fluor, which still holds its large stake in NuScale, 18 active and signed Memorandums of Understanding from 11 different countries were in effect at the end of 2021.
Though none have yet achieved the status of a signed contract, there have been public announcements of serious interest in Romania and other Eastern European countries. NuScale is one of the six finalists selected for the Great Britain Nuclear light water reactor SMR program. Standard Power announced its interest in using NuScale power plants for two data centers, one in Ohio and one in Pennsylvania.
In March, 2023, an early stage start up company named Blue Energy visited Houston, TX – arguably the energy capital of the United States – for CERAWeek. The founders gave a presentation on their concept for offshore power plants that combine NuScale power modules with proven technology from offshore oil and offshore wind. They shared some startling numbers about the cost reduction potential available for NuScale power modules when using the ocean for the ultimate heat sink instead of a giant man-made pool that must be protected from aircraft impact.
Blue Energy is “productizing” nuclear fission by manufacturing pre-certified light water small modular reactors in shipyards as fully-completed, transportable nuclear power plants that are leased to industrial facilities and countries seeking energy security, price stability, and turnkey decarbonization. We leverage existing oil & gas platform manufacturing infrastructure and a simplified plant design to shrink the construction schedule from 10 years to 24 months and the overnight capital cost from greater than $6,000/kW to less than $2,500/kW while putting nuclear on a learning curve down to $1/W.
CERAWeek presentation “Blue Energy | Offshore Nuclear Power” Mar 7, 2023
The news of the demise of the CFPP should not discourage nuclear energy advocates for very long. It’s not good news, but no one should expect 100% good news with new nuclear development. CFPP’s demise should not – but certainly will – provide PR fodder for those who have never met a nuclear project that they like. It should not – but certainly will – provide a reason for “I told you so” commentary among nuclear energy cheerleaders who are rooting for a different kind of nuclear power system.
I am neither a registered investment advisor nor a broker-dealer and I do not provide stock market recommendations. As a managing partner of Nucleation Capital, I invest solely in private equity. My personal public market portfolio, however, includes some SMR (NuScale’s NYSE ticker symbol) stock that I have no intention of selling.
Additional References
Nov. 22, 2023: The Clean Air Task Force published Lessons learned from the recently cancelled NuScale-UAMPS project, with yet another very powerful argument against reading too much into the cancellation of NuScale's demonstration project as a reflection of the prospects of the broader SMR and advanced reactor market in the United States or globally.
Published by Valerie Gardner in Advanced Nuclear, Advanced Nuclear Customers, Carbon emissions, Climate change, Climate innovation fund, Construction costs, Corporate decarbonization, Energy abundance, Future of Energy, Government support, Investor activity, NEWS, Nuclear competitiveness, Nuclear financing, Nuclear innovation, Nuclear R&D, US competitiveness, US technological leadership, Venture capital support for nuclear
By Valerie Gardner, Managing Partner
June, July and August of 2023 were the three hottest months the Earth has ever seen by such a large margin, it left climate scientists agog. Climate disasters are abounding apace, with the U.S. hit by 23 large-scale disasters, a record-breaking year already. In Pakistan, extreme rainfall and flooding affected 33 million people, killing more than 1,700, displacing more than 8 million and causing damage estimated at over $30 billion, not counting the estimated 2.2% loss to the country's gross domestic product. North America and even Hawaii were ravaged by intense forest fires, with record acreage subsumed, scorching towns like Hahaina, killing hundreds, and forcing evacuations in areas of the northeast, northwest and Hawaiian islands once seen as refuges from the expected heat. Decades of increasingly severe drought, now complicated by shortages and war, have displaced millions in Iraq and other regions of the Middle East and the bad climate news is just getting worse, adding to the cacophony of alarm bells being rung by scientists in almost every field. In this context, when it is clear that we humans are not coming close to winning this fight, it's illuminating to contrast how two competing sustainable investment groups have chosen to address their obligation to invest "sustainably."
As we reported back in May, Parnassus Investments, a leading sustainable investment fund, issued a stunning press release in which they announced the removal of their negative investment screen on nuclear power along with a positive outlook for its role in reducing emissions.
In a succinct six paragraphs, Parnassus explained the basis for this momentous decision that reversed a policy in place for the entire 39 years of their existence. While it is not issuing an absolute commitment to invest in nuclear equity, the statement showed that Parnassus’s Sustainability team had thoroughly researched the issue of nuclear power and were sufficiently convinced that nuclear could be an important contributor to helping the world decarbonize to change their minds and finally include nuclear in the universe of investment prospects.
We regard this milestone decision as an impressive example of science and fact-based ESG leadership, reflecting actual changes in the nuclear industry over the last few decades as well as the utter catastrophe we are facing, if we don't find better ways to reduce emissions from our energy usage. Similarly, around that same time, Bank of America Securities analysts released their first "BUY" recommendation for nuclear power in nearly four decades. In BofAS's highly detailed report, titled "The Nuclear Necessity,” a team of five analysts explained why they were "bullish on nuclear power" and laid out both the case for and the methods by which investors should start increasing their exposure to nuclear equities and uranium. This event, we noted was yet another milestone.
Nevertheless, on August 30th, writing in a publication called ESG Clarity, Leslie Samuelrich, the CEO of Green Century Funds, another investment fund which considers itself a leader in sustainable investing, issued her pushback in the form of doubts. Ms Samuelrich wrote: "Even though I knew for months that an ESG firm was thinking about removing its exclusion on nuclear power producers, I was taken aback when I read their press release. Why would they revert their position and turn to nuclear when investing in renewable energy has grown so dramatically?"
Ms. Samuelrich then proceeds to trot out five dog-eared paragraphs containing the standard litany of antinuclear arguments (Safety, Cost, Timing, Emissions and Waste) which, like figures in a wax museum, reflected views so frozen in time, no amount of new data or climate rationale could have had any effect. She makes no reference to nuclear's improved safety performance, nor any mention of new designs nor the accelerating customer interest in them. The stark contrast between the perspectives laid out by these competing sustainability-focused investment firms offers an excellent opportunity to compare the styles and seriousness of their approaches to their ESG investment missions.
Parnassus Investments
Parnassus Investments was founded in 1984 to provide socially-responsible investments. Headquartered in San Francisco, they now have 70 employees and about $42 billion in assets under management (as of Sept. 30, 2023). This is a serious investment firm with an impressive $600 million in AUM per employee.
Reflecting Parnassus’s seriousness is the Climate Action Plan that the firm adopted in December 2022. This Plan established a goal of net-zero emissions in all their funds by 2050, in alignment with the Paris Agreement. This document and commitment demonstrate that Parnassus understands this key point: it is not enough to avoid fossil fuels; society also has to figure out where all the future clean power that we need will come from. It's the long-term "rubber meets the road" reality check. Parnassus's statement that they will now include nuclear in their investment universe to support the transition to a low-carbon economy reflects their deep thinking about this urgent reality.
We imagine that it must have been a difficult decision for the Parnassus team. But they displayed the intellectual honesty to take a deep, critical look at the landscape for where we will produce our clean energy and, like many of us, found the calculations around deployment of renewables did not add up. It is never easy to have to change one's mind. Never easy to reverse course. With respect to nuclear—which evokes so much knee-jerk prejudice and emotion—even being open to an objective evaluation is difficult. Many members of the antinuclear community see it as such a betrayal, they'll question your motives. What ultimately forces objective people to look more closely at nuclear is the fact and increasing certainty that we cannot meet our climate and energy goals without it. Parnassus demonstrated both analytical clarity and courage in their decision to abandon their negative screen and allow nuclear back into the universe of possible equities—without a thought of abandoning their commitment to rigorously evaluate each prospective candidate for its adherence to high ESG performance metrics.
Although in 1984, Parnassus was also concerned about the safety and cost issues involved with nuclear power, they have since learned that nuclear is a critical source of low-carbon power whose benefits include both safety and a stability. They've also recognized that, over the years, tighter regulations have led to improved designs and operating performance. Additionally, they were pleased to find that the new generation of nuclear technology being developed now offers both higher safety and lower costs. The Parnassus investment team, led by Marian Macindoe, Head of ESG Stewardship, has clearly done a deep dive into today's more diverse nuclear industry, where a broader menu of options are being developed, and believes that "nuclear energy will be an essential source of fuel in the transition to the renewable sources required to support a low-carbon economy . . . and a reasonable choice." This reflects considerable research and learning. We applaud the extremely professional work this team has done.
Green Century Funds
Green Century Funds, founded in 1991 by a "group of environmental and public health nonprofits," has nearly $1 billion in assets under management as of June 30, 2023. Green Century’s Registered Investment Advisor, Green Century Capital Management (GCCM), has 13 employees, six of whom provide investment advisory or research work (as of GCCM's most recent ADV) about $86 million in AUM per employee. Any profits from their investment advisory operations go to Paradigm Partners, a holding company owned by the founding entities, predominantly NGOs affiliated with Ralph Nader's Public Interest Research Group — Mass PIRG, NJ PIRG Citizen Lobby, Conn PIRG, CA PIRG, Washington State PIRG, Missouri PIRG Citizen Org, Colorado PIRG, PIRGIM Public Interest Lobby, and Fund for the Public Interest. These are all advocacy groups. None are scientific or investment experts.
Green Century's stated mission conforms to an advocacy model: to help people save for their future without compromising their values and to help investors "keep their money out of the most irresponsible industries." In other words, Green Century Fund applies a simplified, reductive view that merely screens out investments that don't meet their "values" — i.e. no fossil fuel, tobacco, nuclear and conventional weapons, nuclear energy, genetically modified organisms (GMOs) and other industries "whose core business threatens the environment and public health." Green Century specifically does not aspire to invest into companies that will enable a sustainable future. They also have not published a "Climate Action Plan," from what we could see, so they have made no specific commitment to decarbonizing their fund. We were curious as to what they do invest in.
A cursory overview of Green Century's Equity Fund, the largest of its four mutual funds boasting $544 million in AUM, reveals the following Investment Categories and percentages of investments:
- Software & Service 23% (52% of which is Microsoft)
- Semiconductors 10% (52% of which was NVIDIA)
- Media & Entertainment 8.2% (83% is Alphabet)
- Pharmaceuticals & Biotech 7.3%
- Financial Services 6.4% (26% is Mastercard)
- Capital Goods 6.2% (20% is Caterpillar or Deere & Co.)
- Food & Beverage 4.5% (57% is Coke and Pepsi)
- Renewable Energy & Energy Efficiency 4.1% (90% is Tesla)
- Healthcare 4.0%
- Consumer Discretionary 3.7%
- Equity REITs 3.0%
- Insurance 2.9%
- Household/Personal Products 2.7%
- Consumer Services 2.5% (43% McDonald's)
- Materials 2.5%
- Tech Hardware & Equipment 2.5% (43% Cisco)
- Transportation 2.0% (31% Union Pacific Corp)
- Consumer Durables & Apparel 1.2% (58% Nike)
- Banks 0.9%
- Telecom .8% (98% Verizon)
- Commercial & Prof. Services .5%
- Consumer Staples .3% (54% Sysco Corp)
- Automobiles .3% (Rivian is here at 17%)
- Utilities .2%
- Healthy Living 0.0%
There are several interesting things that pop out from our review. Of the top 9 listed investment categories, containing 70% of the total assets, five have a majority of capital concentrated in just one or two companies. Thus, by dollars, this fund is dominated by its investments in Microsoft, NVIDIA, Alphabet, Mastercard, and Tesla. While these are great companies, it is notable that all of them, without exception, require massive amounts of electricity for their success. Which means from a sustainability perspective, that they will need reliable, affordable and growing sources of clean electricity to remain profitable over time. Where will that come from?
In her written response to the Parnassus shift, Ms. Samuelrich pointedly asks "Why would [Parnassus] revert their position and turn to nuclear when investing in renewable energy has grown so dramatically?" Well, Ms. Samuelrich can easily find the answer to her question in her own firm's largest portfolio. It lacks meaningful investment in clean energy. Green Century claims to have put 4% of its assets into "Renewable Energy & Energy Efficiency." If that were true, one could imagine justifying that level, as the traditional Energy sector represents 4.7% of the market capitalization of the S&P 500 index [S&P 500 9/30/23 FactSheet]. A closer look, however, paints a different picture.
Of the 4% of assets designated as Renewable Energy & Energy Efficiency, 90% was actually invested in Tesla. Tesla is an electric car company, as everyone knows. Cars, even when electric, are neither a source of "renewable energy" nor do they produce "energy efficiency." But Green Century knows this because it has properly categorized Rivian, another electric car manufacturer, in the "Automobile" category. Yet, Green Century chose to put Tesla into the "Renewable Energy" category. Perhaps this is because Tesla acquired Solar City, and so has a small division that sells solar panels and battery walls. But Tesla’s 6/30/23 10-Q reports that “Energy Generation and Storage” produced less than 7% of Tesla's total revenue ($3.038 billion of total revenue of $48.256 billion) for the first six months of 2023.
Aside from Tesla, the amount of capital that Green Century has invested in Renewable Energy & Energy Efficiency is just 0.4%. These investments include five companies, of which Johnson Controls represents 60%. Johnson Controls provides HVAC systems, fire protection, and automated data information about energy use for many types of commercial buildings. They also service "90% of the world's top marine and oil and gas companies for all types of assets and facilities." In other words, a sizeable portion of their business derives from the oil and gas industry, conveniently ignored by Green Century. For argument's sake, we'll assume that Johnson is credibly working towards "energy efficiency" wherever they are but they are definitely not creating renewable energy.
The remaining .16% portion of Green Century's “Renewable Energy & Energy Efficiency” holdings is comprised of four investments: Acuity Brands, Itron, Ormat Technologies and First Solar. Acuity Brands markets smart lighting and building management solutions. Itron provides smart networks, software, services, meters and sensors to help manage energy and water. Acuity and Itron may contribute to energy efficiency, but neither produces renewable energy. Ormat Technologies claims to be a leader in providing "Green Power Plants" spanning geothermal power, solar power and "recovered" energy (i.e. storage). First Solar, the only US-based solar manufacturing company, claims to offer next-generation solar technologies, a high-performance, low-carbon alternative to conventional photovoltaic panels. At last, two companies that actually contribute to the creation of renewable energy! Yet the Green Century fund invests less than 0.12% of its total assets into these two companies. In contrast, Green Century has invested over 2.5% in Coke and Pepsi — more than twenty times the amount invested in renewable energy companies that Ms. Samuelrich claims are growing so quickly.
We are a bit "taken aback" by the choices made by Green Century, not only their degree of concentration in a few large cap companies but the misleading industry categorizations and failure to invest meaningfully in the lauded renewable energy companies working to clean our energy system. Ms. Samuelson argues that sustainable investors should support the renewable energy sector, so why isn't she, if she truly believes that "the world is set to add as much renewable power in the next five years as it did in the past 20?"
Samuelrich asks, "Why gamble with the environmental and public health risks of [nuclear], especially when renewable energy is cleaner and cost competitive?" The answer is clear to those who actually do the research and care about facts: because neither solar nor wind actually provide the reliable or climate resilient power that societies demand and need. Geothermal remains highly limited by geography. So, as we've witnessed, without a truly reliable source of clean energy, humanity will continue to demand reliable but dirty fossil fuels and emissions will keep growing—as they have continued to do, despite big increases in renewables. The only clean and firm source of power that can scale up with the speed we need it to, is nuclear. It's gotten a whole lot better over the last 40 years—in part due to the public's concerns about it's safety and increased regulatory scrutiny—and now a new slate of advanced designs with different sizes and features is emerging and buyers like Dow Chemical and Microsoft are leaning in.
We would urge all sustainable-minded investment groups not to take shortcuts and pander to aged ideologic tropes like Green Century, but instead examine today's facts and data carefully and think critically, as Parnassus did, about the real challenges around how we will produce the enormous and growing amounts of clean grid-scale, distributed and industrial-process heat power on which we all depend. Simply saying “no” to technologies you don't like may have been a justified approach three decades ago but it has not helped solve our true climate dilemma—meeting humanity's growing energy needs without impacting the climate. Until we make this transition, nothing is "sustainable." Nor will it enable one's investors to participate in the growth of a sector—like next-gen nuclear—that is increasingly being recognized by climate and energy experts as critical to our survival.
We are extremely glad that serious, research-focused investors, like Parnassus Investments and Bank of America Securities, are figuring this out and are willing to do the hard work, risk the bruises that may result from following the facts to where they sometimes inconveniently reside, and build the necessary technical capacity to both analyze and potentially invest in the advanced technologies and companies working hard to actually deliver a more sustainable future.
References
- New York TImes, Record Number of Billion-Dollar Disasters Shows the Limits of America's Defenses, by Christopher Flavelle, Sept. 12, 2023.
- World Bank: Pakistan: Flood Damages and Economic Losses Over USD 30 Billion and Reconstruction Needs Over USD 16 Billion - New Assessment, October 28, 2022
- Parnassus Investments: Parnassus Investments Removes Investment Screen for Nuclear Power in Support of Our Transition to Low-Carbon Economy, May 1, 2023
- ESG Clarity: Should we embrace nuclear energy to solve the climate crisis? By Leslie Samuelrich, CEO of Green Century Funds, August 30, 2023
- Bank of America Securities, RIC Report, "The Nuclear Necessity," by Jared Woodard, published May 11, 2023.
- Parnassus' Annual Stewardship Report, Principals and Performance in Action 2023
- Green Century's Equity Fund Holdings, as of June 30, 2023, with assets of $544,380,517.
-
Parnassus Funds, totalling over $42 billion as of 9/30/23.
Published by Valerie Gardner in Advanced Nuclear, Asset manager support, Brilliant thinkers, Carbon emissions, Climate change, Climate innovation fund, Climate mayhem, Energy abundance, Future of Energy, Investor activity, NEWS, Public companies, Reduced ecosystem impacts, Solving climate, US competitiveness, US technological leadership
Jessica Mathews, writing for the Fortune Term Sheet Newsletter, alerted us to the change just made by CalSTRS, one of the largest pension funds in the world. In "CalSTRS taps Sapphire Partners, with an office in Menlo Park, to manage its new emerging manager VC investments," we learned that CalSTRS has hired Sapphire Partners to manage its five emerging manager-focused funds, with $1.4 billion in assets. Sapphire will bring sole focus to CalSTRS' growing investment into emerging managers, a distinct asset class (of which we are a member). We are delighted to hear this news and applaud the decision and its rationale.
Though it may be obvious, when some of the largest and most successful investors in the world decide to redouble their focus on a certain asset class, there's usually a good reason for it. In this case, there are highly compelling economics—in the form of superior returns—coming from emerging managers. New managers, while they don't have an investment "track record" by definition, are often launching new funds because of some kind of significant shifts in markets for which they don't see viable options or for which they have a competitive advantage or discernable investment edge.
The challenge for LPs is being able to select which emerging teams to invest in, since there is a good distribution between top emerging managers and run-of-the-mill emerging managers, who have very little differentiation or specialization.
According to Beezer Clarkson, who leads Sapphire's fund investing business, a key piece for them is simply having an emerging GP being able to articulate why an entrepreneur would pick them as an investor to join a round and why an LP should be interested in their thesis as an investor.
According to David Zhou, in an interview published by Adam Metz of D.F.A. on his Substack, emerging managers regularly outperform. "My suspicion is that emerging managers have that chip on their shoulder. They have something to prove to the world. They’ll hustle for deals. When founders pick who they want on the cap table, they want people who care about them and their space."
We tend to agree. Nucleation remains the only venture fund focused on nuclear, especially the fission kind. And when you are the only fund focusing on the specific tech sector (namely advanced nuclear in our case) that a venture is in and you bring decades of experience, deep connections, plus expansive knowledge of the in's, out's, pro's, con's, competition, suppliers and regulators, history and a vision for what will be and a commitment to making it reality, the answer to these questions becomes apparent.
Nucleation Capital has completed eight quarters of investing, has made ten very promising investments and is starting its third year of operations. If you would like to receive a copy of our newly released Two Year Report, please send your request to us using this link.
Sources
1. TERM SHEET: CalSTRS taps Sapphire Partners to manage its new emerging manager VC investments
By Jessica Mathews
September, 13, 2023
When the California State Teachers’ Retirement System makes any kind of change to its portfolio, people pay attention.
With more than $321 billion in assets under management, CalSTRS is one of America’s largest public pension plans and therefore one of the world’s most important limited partners, with approximately $50 billion in capital strewn across private funds and, naturally, some of the world’s most influential private companies.
CalSTRS’ core private equity portfolio is littered with all the usual suspects: TPG, New Enterprise Associates, Thoma Bravo, Blackstone, and, as of 2021, Tiger Global, to name a few. But 21 years ago, the pension plan also began setting aside a small portion of capital to back first-time fund managers. It has hired out that responsibility to three third-party partners over the years: HarbourVest, Muller & Monroe, and Invesco.
Now, CalSTRS says that one of those partners—Invesco—is getting out of this line of business, so it is bringing on Sapphire Partners, the $3.6 billion LP arm of enterprise software-focused VC Sapphire Ventures, to manage five funds and $1.4 billion in assets focused on emerging managers. With the change, CalSTRS will, for the first time, have a fund class solely focused on emerging venture capital investors. (Invesco declined to comment for this story.)
“Standardizing one group to focus on venture—because it’s so specialized from an emerging manager standpoint—made a lot of sense for us,” Rob Ross, a private equity portfolio manager at CalSTRS, told Term Sheet in an interview. He added: “We just haven’t been as specialized as we should be, given the nuances of venture capital.” Ross pointed out that, while Invesco did make investments in emerging VC, PE, and growth investor managers over their 18 years working together, this will be the first time emerging VC managers will be singled out.
Beezer Clarkson, who leads Sapphire’s fund investing business, says that Sapphire will invest CalSTRS’ capital exactly the same way it deploys its own. Sapphire Partners backs VCs raising one of their first three funds, targeting a 3x net return for Series A funds and a 5x net return for seed funds. While Sapphire will look at both specialists and generalists, Clarkson says it’s important that a GP can articulate why an entrepreneur would pick them as an investor, and why she should be interested as an LP.
“I think the authenticity of that answer is the differentiator,” Clarkson says.
CalSTRS is currently investing out of its fifth fund, a $250 million fund from 2021, and Ross estimated there is approximately $80 million from that fund left to deploy. (CalSTRS filed with the SEC for a sixth fund vehicle in order to shift management responsibilities to Sapphire, though Ross clarifies this is not a new fund and CalSTRS has not set aside any additional capital at this time.)
The change at the pension fund will likely be a welcome one for first-time managers, as fundraising has been pretty dire for those just getting their start. As I wrote about last month, emerging managers are on track to raise less than they have in a decade, based on data from the first four months of the year.
Part of that has to do with risk. Emerging managers, by definition, have fewer than three funds, meaning they don’t have much of a track record to show investors. “Only about 17% of funds make it to fund four,” Clarkson says, citing data from PitchBook. Not to mention, the current market uncertainty has made price discovery more difficult, and LPs are being choosier across all their GPs.
“I think all LPs are being more selective than they had been in the past,” Ross says.
At the same time, a high-risk bet on a first-timer can turn into an enormous return. Cambridge Associates reported in 2019 that 72% of the venture industry’s highest-performing funds were run by emerging managers. (This is the most recent metric. Cambridge Associates didn’t respond to my request for updated figures.)
“There’s no guarantee it’s going to work out well. And because there are so many emerging managers every year, the challenge of picking the ones that will continue is extraordinarily hard—and that’s probably the nugget of why most LPs don’t do this,” Clarkson says.
For CalSTRS, returns for this class of funds have been strong so far. Here’s a look (I didn’t include the 2021 fund because it didn’t have a long enough track record to judge it fairly):
As it’s become more and more competitive for LPs to get exposure to top-performing funds, it makes sense for large-scale limited partners to be building relationships with promising investors earlier on. And there’s nothing preventing a pension plan or institutional LP from outsourcing most of the work. Just earlier this year, one of California’s other major pension plans, CalPERS, had said it was now working with TPG and GCM Grosvenor to deploy $1 billion into emerging manager funds.
Sapphire Partners will assume management of the CalSTRS New and Next Generation Manager Funds, which includes managing available capital to make new investments into emerging managers focused on early-stage venture capital
WEST SACRAMENTO and MENLO PARK, September 13, 2023 / PRNewswire: The California State Teachers’ Retirement System (CalSTRS), the world’s largest educator-only pension fund with more than $320 billion in assets, and Sapphire Partners, the fund investing strategy of Sapphire, a specialized technology investment firm with over $11 billion in assets under management,(1) today announced a partnership to invest in emerging managers focused on early-stage venture capital. As a part of this partnership, Sapphire Partners will assume investment management responsibilities of five CalSTRS “New and Next Generation Manager Funds” existing funds, representing approximately $1.4 billion in assets under management.(2) Sapphire Partners will also have capital available to continue making commitments to new and emerging venture capital managers.
“Emerging managers are critical to the venture ecosystem and an LP’s portfolio, and both CalSTRS and Sapphire Partners have long histories of supporting them on their journey,” said Beezer Clarkson, Partner, Sapphire Partners. “Sapphire believes we are well positioned to identify the next class of rising talent early and help them grow and scale their businesses.”
The announcement comes amid one of the most challenging fundraising environments in recent years, with 91% of emerging managers finding fundraising “difficult or very difficult” in 2023. With many LPs constrained on allocations, Sapphire Partners is excited to be an active and supportive partner for emerging managers seeking to fundraise in this environment and has invested in emerging managers since the strategy’s inception nearly twelve years ago.
“One of CalSTRS’ primary goals since the program’s inception in 2005 is to partner with diverse GPs that represent the demographics of California, and we know greater diversity is a natural byproduct of focusing on small emerging managers,” said Christopher J. Ailman, CalSTRS’ Chief Investment Officer. “This partnership with Sapphire aligns with our long history of finding diverse investment managers. We look forward to partnering with Sapphire on this important mandate.”(3)
Sapphire Partners has been an active Limited Partner since 2012, investing in early-stage venture capital (Seed to Series A) funds within the US, Europe and Israel, with, more recently, a focus on identifying managers Sapphire believes may become the “New Elite” in early-stage VC.
Managers may benefit from Sapphire’s industry insights, its experience investing in emerging managers, and its efforts to demystify the “LP Perspective” through OpenLP, a Sapphire-led resource for the VC community. In addition, the broader Sapphire technology investing platform, featuring a multibillion-dollar direct VC investing strategy, provides managers with market and industry insights from the investment and Portfolio Growth teams and a scaled firmwide infrastructure to tap into where relevant.
This partnership will allow Sapphire to expand its ability to support emerging managers while continuing to focus on established managers through its existing investment platform. Of note, approximately 60% of Sapphire Partners’ relationships began at the emerging manager stage.(4) Since its inception, Sapphire and the New and Next Generation Manager platform have partnered with approximately 300 funds over their combined history. Today, approximately 70% of Sapphire Partners’ portfolio of existing managers have checkwriters from diverse backgrounds.(5)
About Sapphire Partners
Sapphire Partners has been investing in early-stage venture capital funds since 2012 and seeks to identify and support the “New Elite” managers across the US, Europe and Israel who are uniquely suited to invest in the next generation of technology category leaders. Through its underlying managers, Sapphire Partners has indirectly invested in over 3,200(6) companies since inception. Sapphire Partners looks to partner with managers across their journey as a GP and is focused on adding value beyond its capital commitments through value-add services, industry insights, and its efforts to demystify the ‘LP Perspective’ through the OpenLP initiative. Sapphire Partners is part of Sapphire, a specialized technology investment firm with approximately $11 billion in assets under management across three distinct strategies and with team members across Austin, Menlo Park, San Francisco and London. To learn more, visit the Sapphire Partners website.
About CalSTRS
CalSTRS provides a secure retirement to more than 1 million members and beneficiaries whose CalSTRS-covered service is not eligible for Social Security participation. On average, members who retired in 2021–22 had 25 years of service and a monthly benefit of $4,809. Established in 1913, CalSTRS is the largest educator-only pension fund in the world with $321.3 billion in assets under management as of July 31, 2023. CalSTRS demonstrates its strong commitment to long-term corporate sustainability principles in its annual Sustainability Report.
Nucleation Capital completed its second full year as a fund at the end of June, 2023. During these eight quarters, we made ten investments and built a portfolio that showcases how we define our thesis. This then begins to answer the question that many people have: How does a nuclear-focused climate venture fund invest into this sector? The answer is presented in the Two Year Report which we have posted below. We have now commenced our third year and, as an "evergreen" fund, we are continuing to raise capital and welcome new investors. If you are an accredited or qualified investor and interested in getting an allocation in our ongoing investments, please let us know.
Published by Valerie Gardner in Advanced Nuclear, Asset manager support, Capital reallocation, Climate innovation fund, Fund sustainability, Future of Energy, Investor activity, NEWS, Nuclear competitiveness, Nuclear financing, Nuclear innovation, Nucleation communications, US competitiveness, Venture capital support for nuclear
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