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By PWM Editorial

Investing in projects associated with climate change, clean energy and affordable housing can ensure capital is directed to where it is needed most

There are a wide range of social issues, including poverty, healthcare access inequality, and environmental challenges such as climate change and water scarcity, which can be alleviated to some degree by more efficient allocation of capital through impact investments.

Participants 

  • Sandra Schaufler, managing director, sustainable investing, Nuveen
  • Jay Rosenberg, head of public real assets, Nuveen
  • Noah Hauser, portfolio manager, Global Clean Infrastructure Impact Strategy, Nuveen

Investment firm Nuveen estimates that between $3.5tn and $4.5tn annually are needed to achieve the sustainable development goals (SDGs) set down by the UN for 2030. “This is an enormous need and financial markets can play a tremendous role, as capital is such a powerful tool that can do more than just make money,” says Sandra Schaufler, managing director,  sustainable investing at  Nuveen. “It can support a more inclusive, equal and sustainable future.”

Nuveen logo

Asset managers, she says, can pursue positive real world outcomes, by aligning investment strategies with SDGs, across asset classes; through developing proprietary impact methodologies that seek to achieve measurable results; and by influencing companies through stewardship and active ownership. 

The broad range of investment strategies, both public and private, that adhere to this impact investment philosophy include environmental projects associated with clean energy, climate change, and natural resources, and social projects linked with affordable housing and economic development of communities.

Nuveen has made a definitive commitment targeted to close the “clean infrastructure investment gap” by repositioning the firm’s global infrastructure strategy to focus on decarbonisation trends and management of waste and water. 

“We will invest in companies that are solving some of the pressing environmental challenges,” says Ms Schaufler. “Clean infrastructure, in our opinion, is at the forefront of the global energy transition and development of a circular economy.”

Predictable cashflows

Investments into listed real estate and infrastructure assets are becoming increasingly prioritised within portfolios. The potential holders of these assets, disappointed by returns and risks attached to traditional equities, are searching for an investment profile better suited to today’s inflationary backdrop.

Companies investing in real estate and infrastructure not only have a longer-term perspective, but also offer predictable, reliable cashflows, “which differentiate real assets from the broader marketplace,” says Jay Rosenberg, head of public real assets for Nuveen. He also promotes their inflation hedging qualities, with the added benefit that the terms of their tariffs, contracts or leases can often be linked to the consumer price index (CPI). 

Despite the challenges of investing in developing countries, where fast industrialising societies struggle to keep faith with the COP27 climate-friendly agenda, Mr Rosenberg believes there are enough sustainable companies in the real assets space for investment firms to buy into. 

Ripe for impact

“Infrastructure, in particular, offers a very large opportunity set, not only in the total number of companies, but in market cap, as well as geographic regions around the world,” he says, favouring companies “that have a more sustainable business approach, through assets that they operate, or in the way they manage their business.” The infrastructure universe is “ripe with opportunities for making an impact and large enough to create a thematic strategy around investments impacting some of today’s greatest environmental challenges”.

Nuveen’s strategists believe that not only can they help confront the looming spectre of climate change head-on, but that their clients will also benefit from diversification, asset allocation decisions and reduced cyclicality, preventing the destruction of value which many economy-dependent stocks suffer from.

Within infrastructure, Nuveen favours three sectors: energy transition, waste management and water provision.

“This opportunity set is not static,” stresses Mr Rosenberg. “Clean infrastructure is an asset class that’s really growing. The growth is due to local support reflected in public policy, as well as increased demand from both institutional and retail investors.”

The clean infrastructure story, and the energy transition associated with it, is particularly in investors’ minds today, when rising fuel costs have been further amplified by sanctions resulting from Russia’s ongoing invasion of Ukraine.

The success of this theme, says Noah Hauser, portfolio manager for the Global Clean Infrastructure Impact Strategy at Nuveen, is backed by society’s consensus that urgent action against climate change, in favour of environmentally-friendly energy sources, has reached the top of political and social agendas.

“You look around and see a level of co-ordination globally, that I have never witnessed in my career,” says Mr Hauser. This encompasses “the highest level of elected officials, regulators and multinational corporations committed to clean infrastructure”. 

Consumer pressure in favour of greener energy also plays a role, with public sentiment ensuring “there’s a level of support that is just really exciting right now”. This positive, mass pressure on companies, says Mr Hauser, can help push fledgling projects over the finishing line. “Our customers really do want the company to be making these investments, rather than a much more contentious, and problematic approval process.”

The more global, geopolitical competition that exists among rival nations and their regulators for natural sources, the more such trends play to the clean energy story, he believes. “It really increases the attractiveness of active management, particularly in this space,” says Mr Hauser, allowing the firm to give investors exposure to listed assets in specific areas, where they feel confident about regulatory trends. 

“So we’re able to be nimble and really allocate to those regulatory constructs and frameworks that we’re most comfortable with,” he says, stressing the challenges of investing in a volatile environment.

Life in the trenches

In order to analyse these companies, Nuveen looks to recruit specialists from the industry rather than typical investment analysts that “have been looking at spreadsheets their entire career”, says Mr Hauser. “You can see this from our team, that really allows for an appreciation for the financial modelling of our companies,” analysing future earnings and company cashflows, while also appreciating the culture of companies chosen to be part of a sustainable portfolio.

The type of staff he selects for these tasks are those with experience of interacting directly with management of companies, helping shape their strategy and financing of expansion: “When you look at stewardship and engagement with companies, I would argue that our interactions are fundamentally different, because we’ve been in the trenches before with our companies.”

But investors must also be aware of key risks and challenges, says Ms Schaufler, who notes that the Global Impact Investing Network estimates the impact investment market has recently topped the $1tn milestone as it becomes more mainstream.

“There are certainly challenges and also barriers,” she says. “And I think some of those are real and some of those are more perceived, but they need to be addressed. One of the challenges impact investing faces is to determine a clear standard for measuring success to determine if an investment actually makes a positive impact.”

A combination of credible quantitative measurement, increased transparency and evidence-based reporting is needed to improve the industry’s credibility and accountability, according to Nuveen.

“If we hope to reverse the tide of climate change, if we’re really trying to address social inequalities, then we need to further scale the impact investing market across all assets classes,” adds Ms Schaufler. “I believe that robust impact evidence will be key to broadening the market and connecting, importantly, more capital to where it is needed most.” 

For more information, please visit www.nuveen.com/impact

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