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Glossary: Responsible investing

ABCs of responsible investing

This glossary of responsible investing terms helps you understand Nuveen’s unique approach to unlocking investment potential and providing better outcomes for investors, our communities and the planet.

 

Glossary

Best in class

Selecting issuers that demonstrate better ESG characteristics within a particular sector, industry or peer group, and achieve a rating above a defined threshold.

Board quality

Boards play a critical role in crisis management, oversight, and risk management — setting the tone at the top before incidents occur. From an investment standpoint, issues such as director independence, board composition, experience, perspectives and tenure are important because they protect shareholder value. Board composition, executive compensation, business ethics and accounting practices all reflect a board’s judgment and priorities.

Carbon footprint

The sum of greenhouse gas (GHG) emissions — primarily carbon dioxide and other GHGs — for a given company or group of companies comprising a portfolio. For a public equities portfolio, these emissions then are typically pro-rated in proportion to the number of shares held by each company.

Climate change

A change in global or regional climate patterns, in particular a change apparent from the mid- to late-20th century onward — especially warming — attributed largely to the increased levels of atmospheric carbon dioxide produced by the use of fossil fuels. 

Controversial business involvement

Refers to a security issuer’s activity in an industry that can cause significant social harm. Industries include tobacco, alcohol and firearms, among others.

Corporate social responsibility (CSR)

A company’s efforts to evaluate the effect of its operations, processes and philanthropy on the broader community and to set policies and practices that maximize the positive impact of its activities on the company’s key stakeholders.

Divestment

The sale or disposition of securities or other assets based on corporate behavior that is not aligned with specific environmental, social and governance objectives, values or convictions. See responsible investing – other RI approaches .

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Engagement

A dialogue between an investor and an issuer focused on positively influencing corporate behavior on a variety of topics, including ESG issues.

Environmental, social and governance (ESG)

Typically refers to the factors and issues investors consider regarding a firm’s sustainable business practices.

►  Environmental:  A responsible investing factor dealing with climate impact, energy consumption, biodiversity, waste management and natural resource use.

Example: Waste management 
Innovative packaging can reduce waste while also driving down material and transport costs.

►  Social: A responsible investing factor dealing with employee engagement and development, labor relations, human rights practice, product safety and consumer protection.

Example: Health and safety 
Effective health and safety programs can mitigate unexpected costs caused by workplace injuries, e.g., medical expenses, workplace disruption, productivity loss

►  Governance:  A responsible investing factor dealing with management structure, board accountability and independence, executive compensation, audits and internal controls and shareholder rights.

Example: Board diversity 
A wide range of competencies, knowledge, and perspectives can lead to better decision-making and more effective corporate governance.

ESG integration

Considering material ESG factors within the investment decision making process.

ESG investing

Examining a company’s exposure to ESG-related risks and opportunities, focusing on the ones most likely to have a material impact on investment performance.

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Global Real Estate Sustainability Initiative (GRESI) and Benchmark (GRESB)

An investor-driven organization that assesses the sustainability performance of real-asset-sector portfolios and assets in public, private and direct sectors worldwide. The index offers environmental, social and governance data, scorecards, benchmark reports and portfolio analysis tools.

Green

Generally refers to the consideration of climate change and environmental impacts in portfolio construction, i.e., investments in clean tech, renewable energy and energy efficiency. See responsible investing – other RI approaches .

Green bond

A fixed income security for which the proceeds are used to fund or refinance specific climate-related or environmental projects

Human capital management

A comprehensive set of practices for recruiting, managing, developing and optimizing an organization’s human resources.

Human rights

Moral principles or norms that describe standards of human behavior and are protected as natural and legal rights in municipal and international law.

Impact

Seeking to drive positive environmental and social outcomes.

Impact investing

Investing to achieve positive social and environmental impacts. This requires measuring and reporting on impact metrics, KPIs and demonstration of intentionality of investee and investor.

Low carbon strategy

Seeking to lower a portfolio’s overall carbon footprint by favoring companies with lower current carbon emissions, no fossil-fuel reserves, or other green investments. Low-carbon strategies may satisfy clients seeking “fossil-fuel-free” and “green” investments.  See responsible investing – other RI approaches .

Low-carbon economy

An economy based on low-carbon power sources that has a minimal output of greenhouse gas (GHG) emissions into the biosphere, but refers specifically to the greenhouse gas carbon dioxide. The Paris Agreement commits to the transition to a global low-carbon economy over the next 30 years, which many believe will bring substantial benefits both for developed and developing countries and avoid catastrophic climate change.

Materiality

Information that is of significance in the investment decision-making process. Increasingly, ESG issues are being viewed through a materiality lens.

Negative/norm based screening

Exclude sectors, companies, countries that do not meet minimum standards due to unacceptable downside risk or value misalignment. Also referred to as exclusionary screening.

Net zero carbon emissions

Achieved by reducing absolute emissions to the maximum level and balancing remaining emissions of carbon dioxide with its removal (often through carbon offsetting or sequestration) or by eliminating emissions from the atmosphere.

The term net zero is increasingly used to describe a broader and more comprehensive commitment to decarbonization and climate action.

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Paris Agreement

An accord within the United Nations Framework Convention on Climate Change addressing greenhouse-gas-emissions reduction, adaptation and finance, beginning in year 2020. At the December 2015 Paris conference, 195 countries adopted the first-ever universal, legally binding global climate deal. The agreement sets out a global action plan to put the world on track to avoid dangerous climate change by limiting global warming to below 2°C.

Proxy voting

A ballot cast by one person on behalf of a corporate shareholder who is unable to, or prefers not to attend a shareholder meeting.

Principles for Responsible Investment (PRI)

Principles for Responsible Investment (PRI or UNPRI) is a United Nations-supported international network of investors working together to implement its six aspirational principles, often referenced as "the Principles". Its goal is to understand the implications of sustainability for investors and support signatories to facilitate incorporating these issues into their investment decision-making and ownership practices. In implementing these principles, signatories contribute to the development of a more sustainable global financial system. 

Principles for Responsible Investment in Farmland

A set of guidelines developed by a group of UN Principles for Responsible Investment (PRI) signatories. The principles have evolved into the PRI Farmland Guidelines, which are designed to guide institutional investors that wish to invest responsibly in farmland.

Responsible investing

An investment philosophy that incorporates environmental, social and governance (ESG) factors into investment analysis, portfolio construction and ongoing monitoring across asset classes with the objective of enhancing long-term performance, managing risk and aligning client values.

RI principles at Nuveen include:

► ESG integration: we aim to incorporate material ESG factors into our investment process, across funds and asset classes.

► Stewardship: we connect using our influence with companies and issuers to help them innovate and operate more effectively, and partner with stakeholders to drive and advance ESG best practices.

► Impact: through our investing practices, we seek to drive positive environmental and social outcomes.

Other RI approaches include:

► Best in class: Selecting issuers that demonstrate better ESG characteristics within a particular sector, industry or peer group, and achieve a rating above a defined threshold.

► Divestment: The sale or disposition of securities or other assets based on corporate behavior that is not aligned with specific environmental, social and governance objectives, values or convictions.

► Green: Generally refers to the consideration of climate change and environmental impacts in portfolio construction, i.e., investments in clean tech, renewable energy and energy efficiency.

► Low carbon: Seeking to lower a portfolio’s overall carbon footprint by favoring companies with lower current carbon emissions, no fossil fuel reserves, or other green investments. Low-carbon strategies may satisfy clients seeking “fossil-fuel-free” and “green” investments. 

► Negative/norm based screening: : Exclude sectors, companies, countries that do not meet minimum standards due to unacceptable downside risk or value misalignment. Also referred to as exclusionary screening.

► Social and environmental impact: : An approach that actively seeks to deliver a competitive return alongside a positive, measurable social or environmental outcome. 

► Thematic:  Targets investment themes or assets that contribute to specific issues or outcomes, e.g., climate change, gender.

► UN Sustainable Development Goal (SDG) alignment: Aligning investments to the Sustainable Development Goals – e.g., poverty, health, education, climate change and environmental degradation – to help connect business strategies, objectives and outcomes with global priorities. 

RI-focused funds

Originally known as socially responsible investing (SRI) funds, these portfolios explicitly apply environmental, social and governance criteria in their investment decision-making process, often in the development of an investable universe.

 

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Stewardship

A range of activities performed to exert influence on companies, issuers and other investees to help them innovate and operate more efficiently, i.e., proxy voting, company dialogue, targeted initiatives, market initiatives and policy influence. See responsible investing.

Sustainable Development Goal (SDG) alignment

Aligning investments to the Sustainable Development Goals — e.g., poverty, health, education, climate change and environmental degradation — to help connect business strategies, objectives and outcomes with global priorities. See responsible investing – other RI approaches.

Sustainable investing

An umbrella term often used interchangeably with responsible investing. See responsible investing.

Sustainable Development Goals (SDGs)

A set of United Nations goals with a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity. Today, the 17 UN SDGs are an internationally accepted, outcome-oriented roadmap to sustainability for organizations in all sectors.

Thematic

Targets investment themes or assets that contribute to specific issues or outcomes, e.g., climate change, gender. See responsible investing – other RI approaches.

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Investing involves risk; principal loss is possible.

1 Nuveen Real Estate: Net zero carbon pathway (2020)

2 Nuveen Natural Capital: Investing in Farmland (2020)

3The World Green Building Council: From Thousands to Billions (2017)

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.

Because ESG criteria excludes some investments, an ESG strategy may not be able to take advantage of the same opportunities or market trends as funds that do not use such criteria.

The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on factors such as market conditions or legal and regulatory developments. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions made in preparing this material could have a material impact on the information presented herein. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible. This information does not constitute investment research as defined under MiFID.

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