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Investment Outlook

Impact investing: resilience, durability and risk management

Emilia Wiener
Chief Investment Officer, TIAA General Account
Tropical palm leaf and shadow

Views from the TIAA General Account

To what extent is setting a net zero carbon target a political decision?

It is not. As an asset owner with a long-term investment focus, building durability and resilience into our investment portfolio is critical to delivering on our mission of providing retirement security for millions of Americans.  

Plainly put, we consider climate risk one of many investment risks, and the net zero commitment we made is all about how we manage that investment risk over the long term; it has absolutely nothing to do with politics.

What’s driving the General Account’s (GA’s) interest in impact investing? 

Impact investing, of course, goes well beyond the scope of managing climate risk. While it has been defined in many ways, at TIAA and our asset manager Nuveen, impact investing is a way to source investments that offer competitive risk-adjusted returns while at the same time enabling an intentional, direct and measurable positive effect on environmental and societal outcomes. This combination of attributes is what drives the GA’s interest in this space.  

What progress is the GA making when it comes to impact investing? 

For the GA, we have pursued persistent and steady progress, especially considering that we started in impact investing in the late 1980s! 

In 1998, we partnered with several other leading U.S. insurance companies to form IMPACT Community Capital, which focuses on originating and managing portfolios of permanent affordable housing mortgages for investors. In the early 2000s, we were a founding member of Global Impact Investing Network, one of several key industry groups being established during this period focused on impact investing. These programs have been successful in terms of both performance and social impact. 

In 2012, we formalized our efforts with dedicated impact investing teams and introduced a discrete allocation strategy focused on affordable housing, inclusive growth and resource efficiency. We evaluate this allocation just like any other asset class in terms of risk-adjusted returns and sustainable performance.  

Recently, TIAA and Nuveen announced the acquisition of a leading owner and developer of affordable housing in the U.S. This acquisition helps us capitalize on the intensifying demand in the U.S. for more affordable housing, and strongly advances our ability to promote greater financial inclusion, and health and wellness in communities that have lacked meaningful and lasting investment. 

Beyond affordable housing, our impact investing activities include financial inclusion outside the U.S., as well as farmland, timberland and infrastructure with demonstrated and measurable positive impacts. The GA has been able to leverage effectively Nuveen’s broad expertise and demonstrated track record in this space where the opportunity set is only growing.  

And what progress are your seeing among your peers? 

During a recent roundtable for insurance companies hosted by Nuveen, we discussed themes that will drive future allocation decisions. It was clear at that event that ESG integration is now the norm for most insurers. 

Impact investing is also becoming increasingly mainstream across all global institutional investors. According to Nuveen’s annual institutional investor survey, more than half of insurers (53%) currently consider impact when making investment decisions and another 29% plan to start in the next 12 months.

Energy innovation and infrastructure projects are leading areas of interest as insurers prioritize climate goals. But implementation varies with over 40% of North American survey respondents still developing their impact approach and targets, and even fewer having identified a separate impact allocation at the strategic level.

Which other asset classes lend themselves best to impact investing?

Impact investing requires intentionality and the ability and discipline to focus on direct and measurable outcomes. This applies whether it’s a project finance equity transaction or a fixed income investment.  

The key is defining the metrics and, for the GA, leaning on Nuveen’s expertise to engage with issuers to ensure alignment of expected outcomes and how to measure these. Having a dedicated impact allocation also provides greater clarity. 

As noted earlier, climate and environmental risks need to be managed as an investment risk. When widening the aperture, you see that economic inequality, housing instability and lack of financial inclusion all introduce risks that need to be considered as we work to build resilience and durability into our long duration investment portfolios.

 

Energy innovation and infrastructure projects are leading areas of interest as insurers prioritize climate goals.” 

As part of her participation in Nuveen’s Global Investment Committee, Emilia Wiener offers her perspective as an institutional investor and asset allocator. Neither Emilia nor any other member of the TIAA General Account team are involved in portfolio management decisions for any third-party Nuveen strategies.

Responsible investing incorporates Environmental Social Governance (ESG) factors that may affect exposure to issuers, sectors, industries, limiting the type and number of investment opportunities available, which could result in excluding investments that perform well.

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