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Responsibilites of Responsible Investing

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California’s attorney general, Rob Bonta, is taking the fight to the oil and gas industry, but over plastics. His office announced an investigation and issued a subpoena to ExxonMobil over its role in the plastics crisis. Bonta said, “In California and across the globe, we are seeing the catastrophic results of the fossil fuel industry’s decades-long campaign of deception. Plastic pollution is seeping into our waterways, poisoning our environment and blighting our landscapes,” according to a press release from his office. He says the truth is the vast majority of plastic cannot be recycled and the recycling rate has never surpassed 9%. Every week we consume the equivalent of a credit card worth of plastic through the water we drink, the food we eat, and the air we breathe. According to the complaint, in the 1950s, 1.5 million tons of plastic were produced annually. Today, that number has skyrocketed to more than 300 million tons.

Uber is stepping up its electric vehicle plans in the UK. The company says that more than 90% of new vehicles joining the platform in London are now fully electric, and about 5,000 drivers there are piloting electric vehicles, a number it expects to double by the end of the year. Uber first introduced Uber Green in Paris, which allows riders to book a trip only in a hybrid or an EV. Although early uptake was slow, today fully 45% of the vehicles on the platform in the French capital are hybrid or fully electric.

The Securities and Exchange Commission (SEC) extended the comment period on its high-profile climate disclosure rule proposal. The proposal was approved March 21st and would require public companies to disclose a long list of climate-related information in their registration statements and periodic reports to the SEC and shareholders. That list includes the oversight and governance of climate-related risks by the registrants’ board and management, the material impact any climate-related risk is likely to have on business and consolidated financial statements, and how climate-related risks have affected or are likely to affect the company’s strategy, business model and outlook.

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Meet Amy O’Brien

Amy O’Brien serves as the Global head of Responsible Investing (RI) at Nuveen, a money manager with over $1.3 trillion in assets under management. In her role, Amy leads a 20+ member team and is responsible for creating a holistic RI vision and unified framework across Nuveen and its owner TIAA, the Teachers Insurance and Annuity Association of America. Throughout her 25-year career in RI, Amy has worked on a wide range of environmental, social and governance (ESG) and impact investing initiatives across TIAA. Amy has served on the Boards of the Social Investment Forum (SIF), the Investor Responsibility Research Center Institute for Corporate Responsibility (IRRCi) and the Steering Committee of the Global Initiative for Sustainability Ratings (GISR). In 2018, she was identified by Barron’s as one of the most influential people in ESG investing.

What’s in This Episode?

With $1.3 trillion in assets under management (AUM), Nuveen swings a pretty big bat as far as money managers go, and it’s been in the game since 1898. Today, it’s wholly owned by TIAA, the Teachers Insurance and Annuity Association of America. Its portfolio includes mutual funds, exchange traded funds (ETFs), including 12 ESG-related ETFs, private equity, farmland, fixed income, and several other asset classes. And Nuveen takes its responsible investing goals seriously. Amy O’Brien is the Global Head of Responsible Investing (RI) at Nuveen, and she’s been in the SRI and ESG arena her whole career. She’s also our guest on The Green Investor this week. Welcome, Amy.

Amy:

Thanks, Caleb. It’s great to be here with you.

Caleb:

Well, your job title kind of speaks for itself, but I’m sure there’s lots of nuances there in terms of what you do at Nuveen. How would you describe what you do?

Amy:

So my job, which has certainly evolved over the 17 years I’ve been at this company, has really been about bringing together the responsible investing framework across the entire enterprise. And currently that framework consists of how we integrate environmental, social, and governance (ESG) factors into the investment process, how we flex our voice in the market through our stewardship activities, you know, voting, engaging with companies and other investees. And then, how we’re measuring and managing impact, which has become a pretty significant concept in the whole field of responsible investing and sustainable finance in recent years.

Caleb:

Right, so what does responsible investing mean for Nuveen? You’re privately held, so you have to answer to TIAA, your clients, and the people that invest through you, including a lot of teachers. But when we say responsible investing, it means a lot of things to a lot of different companies. But I think it means something very unique at Nuveen.

Amy:

Yeah, for sure. And I think the definitions vary and people can get lost in the jargon. But what it just means at its core is about being better investors, and this is by incorporating ESG factors into our investment process and using our influence in the market to drive better performance longer term with our companies and in other investees. And then delivering on clients’ evolving needs and stakeholder needs, many of which are really oriented around environmental and social objectives. And we have been in the space for a long time, Caleb. And I would say that original TIAA client base is the key reason why TIAA and Nuveen have had a focus on this for a long time. I’d say those original investors who worked at higher education, nonprofit institutions, research organizations—we’re really focused on the environmental, social and governance aspects of their portfolios for many decades before this became popular.

Caleb:

So in terms of climate, and the E part of ESG, the environmental part of it, what are your clients really want when it comes to that?

Amy:

Yeah, so that’s a great example. The way that that theme plays out across all asset classes is really manifested through the climate thing. So they want a lot of things. Broadly speaking, they want to make sure that we, as their investment manager, are accurately assessing climate risk in the portfolio, managing that risk. And there’s, you know, a growing focus on the physical risks, the transition risk as the world, you know, commits to things like net zero and different client objectives around that. So they want that from us, but they also want us to make sure we’re focused on the opportunities that arise from tackling some of these environmental and social challenges. So, across the board, our clients are just looking for us to be good stewards of their capital. But beyond that we have a growing number of clients who have very particular objectives for their portfolio. Some clients, individual investors or even institutions do want to limit exposure to, say, certain industries that are heavy emitters. Others want us to be a partner with them in investing in transition, so a lot of this happens through our real estate or infrastructure portfolios. And others, you know, are expecting us to really help shape the regulatory environment, which is really all over the place. But investors like us are in a key position to help connect the dots on how regulation should evolve going forward on this topic.

Warning:

The Green Investor podcast is for informational and educational purposes only and does not constitute investment advice. We will not make recommendations to buy, sell, or hold a particular security or asset, although we may discuss financial products with our guests. Some of our guests may invest in securities mentioned on this podcast. Some of our guests may sell or market securities mentioned on this podcast, but all listeners should do their own research or consult with a financial advisor or broker before making any investment decisions.

Caleb:

And you make it very clear that you’re an active manager of funds, you’re engaging with the companies in the industry rather than necessarily divesting, although that’s probably an option with some of the ETFs. But give us an example of how you’re putting that active management into practice with a particular company or industry?

Amy:

Yeah, I really love that question because for a long time, large investors like us have been scrutinized around, you know, how are we influencing companies? And we can certainly take all these factors and put them into a portfolio. Certain portfolios may result in exclusion, but a bigger role and a responsibility that we take seriously is engagement. And so, we over the years have always pursued a very active dialog approach with our companies. We’ve organized as a company around key issues, key campaigns, but really focusing in on the business case, of course, for why companies should be really paying attention to things like women on boards, diversity on boards, and now climate. So one of our more recent engagement initiatives, that builds upon many years of engaging on climate, is to get very focused on the company’s commitments to net zero. Like, what does that mean in practice, what kind of disclosure, what kind of transparency? We recently revamped our whole stewardship report, which is a way that we are being accountable to our clients, but also other stakeholders. So you can see, we’re not just going and having a conversation with a company anymore. It’s targeting companies, really digging in, doing our research. Now we are specific about requests from them following up and then, again, being very transparent to our stakeholders that our conversations result in change at the company. So, I came from the whole shareholder activism background before my role here, and I’m thrilled to see the focus and the scrutiny on this part of responsible investing in sustainable finance.

Caleb:

Yeah, well, your stewardship report, which you mentioned earlier, details a lot of your initiatives in responsible investing for our listeners who have yet to read it. I checked it out. We’re going to link to it in the show notes here. But what are the top two or three takeaways? You’re on that, as well as the CEO. So it’s not just this thing off to the side, it’s you and the CEO of Nuveen putting this out together along with your teams.

Amy:

Yeah, so let’s talk about one of the less explicit takeaways, which is that this really matters to our company. Our approach is to work by team of over 30 people now working hand-in-hand with investment leaders to design these initiatives to not just have us, our team talking to companies, but to promote this throughout all of our analysts and portfolio managers. So hopefully what comes across in that report is our commitment to using our influence. But also we believe that we’ve taken stewardship to the next level when it comes to, you know, our disclosure, our whole approach, you know, how we’re targeting companies around not just generic conversations. Right? Caleb, we have more companies coming to us than ever because they want to make meaningful change. They know these things matter to stakeholders and investors. And so, what we’ve had to do is be very explicit about targeting, and change the way we report out and be accountable to our stakeholders. And there’s no longer any kind of generic conversation—you should produce a sustainability report, right? It’s really, you know, what targets are you setting, how are digging into the business case? So I just say the rigor around those engagements is pretty intense.

Caleb:

Well, you’ve got over $1 trillion in assets under management. You are very important voice in proxy voting, where as a shareholder you have a pretty big megaphone to try to steer change among the companies or industries you invest in. So we’re in that season right now. What are some of your key proxy initiatives as they relate to climate change and global warming this year?

Amy:

Yeah, so one of the key things that, you know, we have produced a proxy season preview for the past couple of years to kind of share our thoughts. And then, of course, we’ll be producing our annual Stewardship Report, which now includes a detailed description of how we vote on every shareholder proposal at the S&P 500. So it becomes very nuanced, but we’re seeing some interesting, I would say, hybrid proposals this year in the way we approach things. So, you know, you used to have governance proposals, social proposals, environmental proposals. We’re seeing people making links between the board of directors and their climate knowledge at-large companies. So we’re really looking at those hybrid proposals very, very closely. Those are the conversations we’re having. There’s a big governance push in terms of companies’ political contributions, the political voice. So there’s a ‘G’ overlap with this as well. So our approach has been, we’re looking at everything very carefully. We vote at over 10,000 meetings every year and of course, everything involving a shareholder proposal, key director votes. We’re doing everything case-by-case. I was talking to our proxy voting team yesterday. We have 1600 votes over the next two meetings, over the next two weeks—it’s a heavy season!

Caleb:

And this doesn’t happen in a bubble—we’re looking right now at a market where commodities have really been the leaders here. Energy stocks, energy prices are sky high. That’s the leadership in the market right now. A very tough time to be a green investor when you look at what’s happening these days. But, how are you navigating that when the returns are really in the so-called ‘dirty industries’? But you’re an active investor, so you don’t necessarily turn your back on it. You’re trying to engage with these companies. Give me a sense of how this is all playing out in the midst of this commodity bull market we’re facing?

What You Need to Know:

Commodity prices are on track for their highest annual gain since 1915, according to a report by Bank of America (BofA) Global Research. As of May 6, commodity prices have risen 46.3% year-to-date, with the largest increases recorded for energy commodities—namely gasoline, crude oil, and heating oil. Prices of agricultural commodities such as wheat and grain have also accelerated in recent months as a result of Russia’s invasion of Ukraine. Rising commodity prices have been a key driver of inflation in recent months, with CPI inflation recording an annual increase of 8.3% in April, the highest in over 40 years.

Amy: 

Yeah, so our whole approach has to be multifaceted. So of course we’re looking at how we use our influence. I mean, this is a long term topic for the world and for investors. Earlier this year, when we had the invasion of Ukraine, there were a lot of people looking at, hey, will large institutional investors pull back on their commitments to net zero, during this energy transition? You know, what is the role of the large energy companies versus, say, a greater focus on renewables? But I think the toolkit on on this topic in particular, climate, is pretty multifaceted. So, of course, we continue to by engaged, continue to be invested in large energy stocks. That’s our fiduciary duty. But at the same time, working hand-in-hand with those companies to really understand their transition plan, since we’re going to need these large companies to be part of the solution, and, of course, we’re also going to need the pure play, the smaller, more innovative companies. And so we have to be, you know, in dialog on that. We’re weighing in heavily on a lot of the emerging SEC proposals on disclosure because we’ve experienced these topics from so many angles from the public and private markets. And so, our playbook remains the same even in this market. And one thing individual investors should think about is, you know, ESG analysis and how that’s thought about, versus only having the peer companies in your portfolio. ESG has become much more than a product line, and I think that we need these large companies, these heavy emitters, to be part of the solution. So we certainly are not shunning them. And we just deepen the engagement, at least at these periods in the market.

Caleb:

When you’re the size you are at Nuveen and you’re managing money for so many people, families and teachers and former teachers, in addition to other retail investors, you can’t ignore what’s going on in these major industries. I’m glad you brought up the SEC. What is missing in your point of view on the regulatory front? We know the SEC has extended the comment period for climate disclosures—this is a new thing they’re trying to get companies to do. Europe and other countries are much further along. What do we need here in the U.S. for much more direct engagement with companies and much more transparency, which I know is core to what you do.

Amy:

So, we certainly do need better data. What we’re experiencing on the regulatory front is a very specific approach by the SEC, contrasted to what we’re seeing coming out of Europe. So the SEC is focusing a lot on individual company disclosure, while in Europe we’re facing new types of reporting at the fund level that don’t actually match up with the data that’s available in the market. And so we need targeted disclosure, we need better information. I mean, we’re very glad about the extension of the deadline because we take a very holistic view and try to have a balanced approach. Again, it gets back to my point about how we would vote on high-profile shareholder proposals. We have to be mindful of what we need as investors. Do we need better scope, better information? Of course, we agree with the SEC that companies should be required to report this data as industry methodologies already exist, and many companies voluntarily provide this anyway. So sometimes it’s a head scratcher when there’s pushback, because a lot of companies, frankly, are out ahead of regulators on these topics. But we have to make sure there’s no unintended consequences coming out of these proposals as well. And things like the burdens on reporting requirements that may deter companies from making commitments. And the other thing that this brings up, right, is I’ve never seen in my entire career the combination of the ESG people, the investment people, and then engaging with legal risk compliance. I mean, we all have to find a meeting ground on a lot of these topics and what’s appropriate. So I think this has helped advance the conversation, certainly by governments taking action and the community needing to respond. But we do have to be careful sometimes of going too far or risk unintended consequences. And so you’ll see our comment letter is public and we’re working on our reply right now.

Caleb:

Nuveen manages a lot of farmland. A lot of folks may not know that, but you’re one of the biggest farmland managers in the country. That requires a lot of energy to maintain, obviously. How does responsible investing play into that management of all this farmland? And we know it’s a pretty big asset here in the United States.

Amy:

I’m glad you brought up that question, because a lot of focus in the U.S. now have been the public markets and ESG. But Nuveen has a very large alternatives book—real estate, agriculture, infrastructure. And there, you know, we outright own assets, we own land, right? We own buildings. And so our experience with sustainability and how that kind of grew up on the alternative side is frankly, it’s how we learn from the public market side, but we are directly involved and we have made the business case about why you need to have sustainability practices built into the management. I was just out in California last week where we have a lot of vineyards, and we grow a lot of grapes and other crops. And the detail and the precision around soil health, irrigation, and the way that you improve crop yields and how you engage with the worker. I mean, we are living these topics as an outright owner of some of these assets and that—that has an impact on us across our whole approach, because we are on the ground working with operators and making the business case for sustainability, for not just the farmland, but again, our real estate and infrastructure are also a renewable business. And so we really get to touch and feel these issues as a manager, in ways that I don’t think others do.

Caleb:

Right. And you what you don’t want is stranded assets. That’s a lot of farmland. That’s a lot of ‘asset’ on your books, so to speak. And, if not managed properly, that’s not going to be a very worthwhile asset going forward, so it makes sense that you’re involved on the ground level there. In terms of what you think is missing, in terms of the conversation around responsible investing as it relates to climate and the environment, what’s something that nobody is talking about, Amy, that folks need to be paying attention to now?

Amy:

We have to start talking about how we’re going to invest in the solutions. I think one thing that frustrates me over the years—I think we’ve made progress—but I think for many, and those who have perhaps been on the sidelines looking at our industry and have not begun to engage. We’re still about making judgment calls on what we should or shouldn’t invest in. And I think what’s missing from the conversation is we have to focus on on the data. But I feel like we as an industry, we have a unique moment in time here to converge to, really, I’m not saying everybody has to do everything the same way, but more focus and clarity about what sustainable finance or responsible investing is trying to achieve, and then the options. I think a lot of what’s also missing is the way in which we bring clients along the journey. I mean, at this point, maybe a client—if they’re not already in some kind of ESG strategy—they might ask an advisor, “Hey, I’ve heard about this, should I be in it or not?” And you know, we know probably where some of these conversations go. And then lastly, I think what’s missing is, you know, I’ve been a practitioner on the institutional side for 26 years now, and I feel we need to adjust our language with how to reach that retail investor. I think we all have a very ‘practitioner speak’ way about this right now, and so I think some better engagement with that end client will just drive more interest in our field.

Caleb: 

It’s an alphabet soup of acronyms out there. We try to unpack the acronyms here on The Green Investor. So what can we expect from Nuveen in the next two-to-three years as it relates to responsible investing, but really climate and green—that ‘E’ part of ESG—what’s coming out besides the ETFs?

Amy:

We’re looking across the platform, you know, what are some new strategies that we can bring to clients, particularly on the alternative side, but building out a broader set of products And again, those climate objectives, if you unpack them, they’re low carbon, carbon transition, carbon negative, firms that might want to have a negative emitting-type product, if you will, maybe coming from perhaps our timber portfolio. And so we will continue to build out the right solutions, the right advice for clients on that. And I know this is about the green investor, but, you know, we are looking ahead at the ‘S’ in ESG as well. We’ve all been living through the ‘S’ in ESG over the past couple of years, particularly with the pandemic, the renewed social justice movement in this country from two years ago. People have also experienced workplace-related issues. So we know that a lot of clients are thinking about what’s the next big issue, and we do believe that it is around inclusive growth as a way to organize across the platform here at Nuveen. And so, definitely more on the climate. TIAA, our parent, has set the net zero carbon goal by 2050. And so, we’re not just saying we’re offering this to clients externally, but we’re eating our own cooking on that. And as we work our way through the detailed implementation that’s required to achieve that kind of goal for such a large portfolio, we’re going to be very vocal in the market, sharing our lessons learned, and, you know, really dialing up on the thought leadership front because we all need to learn from each other here on this thought journey.

Caleb:

Amy O’Brien, the Global Head of Responsible Investing for Nuveen, thanks so much for joining the Green Investor. We really appreciate it.

Amy:

Thanks, Caleb. It’s been a pleasure.