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Fixed income

Impact investing in public fixed income markets

Stephen M. Liberatore
Managing Director, Head of ESG/Impact, Global Fixed Income
Jessica Zarzycki
Portfolio Manager
Impact investing in public fixed income markets

Our goal: positive outcomes and benchmark-beating returns

Across Nuveen, our commitment to responsible investing (RI) is based on three core principles: (1) integration of environmental, social and governance (ESG) factors into our investment processes and decision-making; (2) proactive engagement with issuers and other industry stakeholders on a variety of ESG-related topics; and (3) measuring and reporting on the impact of investments that have a direct societal and/or environmental outcome.

Our team incorporates all three principles into the RI fixed income strategies we manage. With respect to integration, we seek to emphasize issuers that embody ESG leadership, and issues that provide environmental and social benefits. On matters of engagement, we are proactive and collaborative partners with issuers, underwriters, rating agencies and asset owners. We are also actively engaged with global industry organizations to create and promote market wide standards..

chart 1
We believe our investment process as it relates to the third principle — impact — is what differentiates us the most from other managers of RI assets: our proprietary approach seeks to deliver and quantify environmental and social benefits while outperforming well-known bond market benchmarks. Our record of success in meeting these dual objectives dispels the myth that impact investing is concessionary, i.e., that it requires investors to sacrifice financial performance in order to achieve the desired nonfinancial outcomes. This is the #1 misconception about impact investing and other RI strategies, and it persists despite a significant body of empirical research indicating that such strategies have the potential to add alpha, lower risk and achieve positive, measurable results.
The public fixed income advantage

Tapping the potential of public fixed income markets can be a highly effective way to drive positive outcomes in our communities and around the world. Our goal is to lower the cost of capital for borrowers financing impact projects and initiatives. Relative to private investments, public securities offer daily pricing and liquidity, as well as exposure to impact opportunities with a far lower minimum investment.

The perception that impact objectives can be pursued only through private strategies is inherently false. Public markets offer vast opportunities to finance positive outcomes, whether it’s clean energy alternatives like wind and solar power, protecting oceans and marine wildlife while promoting a more sustainable economy or directing capital to increase the supply of affordable housing.

We intentionally target and seek to maximize exposure to such investments, but not at the expense of performance. In other words, we don’t buy bonds exclusively for their potential environmental or social impact. They must also represent attractive relative value and appropriate levels of risk. Thus, they are subject to our intensive fundamental credit analysis and portfolio construction considerations, just as any nonimpact investment would be. Moreover, we don’t maintain an explicit target allocation to impact investments in our portfolios, as doing so may undermine our ability to beat our benchmarks and manage sector-level risk.

Our proprietary approach seeks to deliver and quantify environmental and social benefits while outperforming well-known bond market benchmarks.”

Our approach to impact investing: direct and  measurable

There is no industry-wide definition of terms like “sustainable,” “responsible” or “impact” investing. This lack of consistency has made it challenging to understand how such disciplines are practiced and how performance  should be gauged. Against this backdrop, in 2007 Nuveen’s fixed income and  responsible investing teams proactively created clearly defined impact standards. The essence of these standards was the requirement that our impact investments be  “direct and measurable.” Our criteria exceed the high standards set in voluntary industry guidelines such as the Green Bond Principles and Social Bond Principles.1

  • Direct: This refers to the explicitly stated use of a bond’s proceeds. The capital raised must fund specific projects or initiatives that deliver a clearly defined environmental or social benefit, including pure-play issuers. Typically, general purpose debt does not meet this standard, whether it is issued by a corporation, government or municipality. 
  • Measurable: On at least an annual basis, the issuer must be able and willing to disclose key performance indicators (KPIs) through impact reporting for the project or initiative. Such disclosure enables us to assess both the financial and impact efficacy of the capital expenditure, informing our ongoing evaluation of the investment’s potential risk and providing transparency to our clients about specific impact outcomes. 

We believe our direct and measurable impact investing standards are  among the most rigorous and comprehensive in the asset management industry. At the same time, they enable clients to clearly understand  the wide range of environmental and social impacts we seek. They have also proven to be a useful tool for communicating expectations with issuers and underwriters.

Since implementing our approach in 2007, we’ve seen increases in the number of impact issuers, security types and projects being financed with fixed income instruments. This growth and diversification is a positive trend because it increases opportunities in which impact investors(both asset managers and asset owners) can participate. This, in turn, helps lower the cost of capital for issuers, thereby bolstering the long term viability of projects and initiatives that aim to deliver positive outcomes.

We make impact investments across a range of public fixed income  sectors where proceeds can be tied to specific projects or initiatives or are used to fund entities fully engaged in such efforts. To date,  we’ve invested in impact securities in the following sectors: agency debt, asset-backed securities, mortgage-backed securities, commercial mortgage backed securities, corporate bonds and municipal bonds (both taxable and tax-exempt).

We believe our direct and measurable impact investing standards are among the most rigorous and comprehensive in the asset management industry.

A reputation for innovation

Nuveen is one of the world’s largest fixed income managers2 and a recognized leader and innovator in impact investing. As such, we have far-reaching access to management teams, lenders, policymakers and elected officials seeking to finance environmental and social projects in public markets. We also maintain strong relationships with underwriters to ensure new deal allocations and gather ongoing intelligence in secondary markets. Our team meets frequently with prospective issuers to discuss how to structure bonds, what characteristics are needed to satisfy investor demand and the appropriate level and quality of impact disclosure and reporting.

Engagement is an essential feedback loop in our modern approach to responsible investing. It transcends purely exclusionary processes that eliminate bad actors but provide no incentive for issuers to modify their actions. In contrast, consultative engagement between issuers and experienced impact investors — like Nuveen — encourages issuers to finance projects with meaningful outcomes using public markets.

chart 2
Our impact framework 

Alignment with the United Nations Sustainable Development Goals (SDGs)

Created in 2015, the United Nations Sustainable Development Goals (SDGs) represent guidelines and targets necessary to achieve sustainable development at a global level by 2030. We have mapped our impact themes to the SDGs to demonstrate how our investments may contribute to the achievement of those goals. For more information about UN SDGs, please visit

Four intentional investment themes

We constructed our impact framework based on engagement with our clients and evaluation of direct and measurable impact investment opportunities in public fixed income markets. The resulting framework emphasizes four themes, supporting a multitude of positive environment and social outcomes:

Affordable housing
  • Low- and moderate-income housing loans
  • Transit-oriented development
  • Walkable communities
  • Mixed-use development projects

Alignment with SDGs:

Image A - Impact investing

Renewable energy and climate change
  • New, expanding or existing renewable energy projects (including solar, wind, and small-scale hydroelectric).
  • Smart grid and other projects designed to make power generation and transmission systems more efficient.
  • Energy efficiency projects resulting in the reduction of greenhouse gas emissions

Alignment with SDGs:

Image D - Impact investing
Community and economic development
  • Benefits underserved and/or economically disadvantaged communities
  • Services: financial, hospital/medical and educational
  • Urban revitalization: community centers, reconstruction activities
  • International development and humanitarian

Alignment with SDGs:

Image B - Impact investing

Natural resources
  • Land conservation and sustainable forestry, fishing, and agriculture
  • Certified green buildings
  • Remediation and redevelopment of polluted or contaminated sites
  • Improvement of clean drinking water supplies and/or sewer systems infrastructure
Image D - Impact investing

Beyond impact criteria: ESG quality and risk management

While maximizing exposure to direct and measurable impact holdings that  meet our relative value criteria, our team seeks to balance benchmark-relative biases that include duration, credit quality, sector concentrations and liquidity. We achieve such balance exclusively through investments in ESG leaders. This combination of impact investments and ESG leadership helps ensure that the portfolio’s general risk profile and performance patterns align with client expectations. In other words, we strive to generate out performance and improve risk-adjusted results relative to benchmarks while emphasizing impact investments, and we aim to manage overall risk and minimize tracking error through investing in ESG leaders.

Any holding that doesn’t meet our definition of an impact investment must be an ESG leader,  initially defined by our eligibility criteria.3 By starting with an opportunity set of ESG leaders, we mitigate significant event risk and potential volatility relative to a universe that contains both ESG leaders and laggards. We believe  this also provides transparency into the methodology for our baseline leadership criteria. For ongoing security selection, our team assesses leaders and laggards using ESG factors that are most relevant to their respective industries, (see examples in the table below).

Issuers we identify as ESG leaders have demonstrably superior operational and management qualities that make them less likely to encounter acute financial  distress over time —and thus less likely to detract from the portfolio’s investment performance. In our view, avoiding losers is equally as important as picking winners. This is a facet of risk management that helps us in periods of fixed income market volatility. Three examples of corporate issuer behaviors we’ve intentionally targeted for inclusion in our portfolios are highlighted on the following page.

Beyond corporates, we intentionally prioritize ESG leaders through active  security selection and portfolio construction. For example, to the extent they fit our relative value assessment at a given time, we favor Ginnie Mae  securities over those issued by Fannie Mae and Freddie Mac because of Ginnie Mae’s explicitly stated mission to promote low-income housing affordability.

ESG leadership standards apply to sovereign issuers as well, including  the United States. The United States ranks above average among sovereign issuers for ESG performance, reflecting alignment with its peers on governance factors, underperformance on social factors and outperformance on environmental factors. Sovereigns are evaluated using both external and internal ESG research covering the following factors:

  • Natural resources
  • Environmental externalities and vulnerability
  • Human capital
  • Financial governance
  • Political governance


Key ESG considerations for select industries
8184_Figure 4_v2
Why Nuveen for Impact investing in public fixed income markets?

Impact investing in public fixed income has the potential to add alpha and achieve direct, measurable environmental and social benefits. As one of the largest responsible investing organizations in the world,4 Nuveen has the depth of experience, scale and dedicated resources to offer proven leadership in this discipline. Our team currently manages more than $14 billion5 in actively managed fixed income strategies using the distinctive approach. 

Impact reporting

Annual disclosure of measurable outcomes is on the leading edge of industry practice and demonstrates our commitment to transparency.

Click here for a representative example of how we measure impact in public fixed income

Investors have two ways of judging our impact investing results:
  • Conventional total return and risk-adjusted performance metrics relative to widely used bond market benchmarks and traditional peer groups.
  • Impact reporting in which we publicly disclose the measurable outcomes of our fixed income impact strategies every year.
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1 The Green Bond Principles establish voluntary metrics for project categories that include renewable energy, energy efficiency, and sustainable water and wastewater projects, among others. The Social Bond Principles create similar voluntary metrics for project categories that include affordable housing, job creation, food security, access to essential services and socioeconomic advancement and empowerment, among others.

2 Pensions & Investments, 27 May 2019. Rankings based on institutional tax-exempt assets under management as of 31 Dec 2018 reported by each responding asset manager.

3 Nuveen’s responsible investing team and the joint corporate governance & social responsibility committee of the TIAA and CREF boards established eligibility requirements in 2007 for corporate, government, and agency securities based on third-party ratings. Eligibility is based on ESG leadership relative to peers using best-in-class third-party research from MSCI (corporates and sovereigns) and Sustainalytics (private issuers and others not rated by MSCI). This provides an objective investment universe that can be applied consistently and establishes a baseline level of ESG leadership in portfolios. Each investment team has discretion to select individual securities and further emphasize material ESG considerations as part of the day-to-day portfolio management process. Since third-party ratings are not broadly available for municipal and securitized sectors, the investment teams conduct in-house analysis to determine eligibility for portfolios.

4 Pensions & Investments, 01 Jun 2020. Rankings based on total worldwide assets under management as of 31 Dec 2019 reported by each responding asset manager.

5AUM data is as of 30 Sep 2020

A word on risk

All information shown is historical and represents the views of Nuveen. It is provided for informational purposes only and should not be deemed as a recommendation to buy or sell any security or asset.

Because ESG criteria exclude some securities, investments in ESG-focused products may not be able to take advantage of the same opportunities or market trends as products that do not use such criteria. Investment products in general may be subject to market and other risk factors. Please visit for more details.

The investment advisory services, strategies and expertise of TIAA Investments, a division of Nuveen, are provided by Teachers Advisors, LLC and TIAA-CREF Investment Management, LLC. Nuveen Securities, LLC. Member FNRA and SIPC

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