A to Z of RI across real assets

Nuveen’s 2017 joint-venture acquisition preserves affordable rents for low-income and elderly tenants in nearly 3,500 units in Maryland, Pennsylvania and Virginia. The deal with Baltimore-based Enterprise Homes keeps rental limits in a range of 30% to 60% of area median income. Rent reductions from market rates average nearly 40%, or about $575 a month — savings that the mostly elderly tenants can use to pay for food, healthcare and other essentials. Additional impact benefits include social programs, green retrofits to reduce energy waste and a commitment to consider only buyers who would keep the properties as affordable housing. Nuveen’s investment provides bond-like, steady income for investors, backed by strong demand with near-100% occupancy rates.

Nuveen’s farmland investment specialist Westchester has developed its 900-acre Oasis Vineyard in Monterey County, California at a cost of around $30 million. During the underwriting process, the firm identified the opportunity to enhance the water efficiency of the asset, having witnessed leakage in the existing reservoirs and in the conveyancing of water around the property. Westchester initiated a capital expenditure program that included the construction and redevelopment of three large reservoirs. It adapted the vineyard’s infrastructure for mechanical harvesting. Irrigation upgrades, including the installation of reservoir and canal lining, reduced water usage by 50 percent. This resulted in lower operating costs, the future proofing of the business and, of course, a positive environmental impact.

Unfortunately, climate change is our shared reality—and the longer an investor’s time horizon, the greater the effect of climate change risk on their portfolio.

Forests have the potential to provide the greatest source of low-cost climate change mitigation via reforestation, avoided forest conversion and improved forest management. Measuring forests’ carbon sequestration and stock helps to quantify their net climate impact and identify regions and species with the most low-cost potential for climate change mitigation through reforestation or changes in forest management.¹ 

This year we formalized our carbon accounting and reporting practices to better understand how our forestry investments mitigate climate change, and to provide credible, transparent metrics to our investors, many of whom have climate mitigation targets. Our 2018 carbon metrics provide an initial measurement of GreenWood Resources’ role as both a global climate solutions provider and source of carbon diversification for investors. GreenWood is Nuveen's forestry specialist.

As our forests grow, they naturally absorb and store carbon. In 2018, our carbon stock totaled 12,138,579 tons over 512,421 forested acres. That is equivalent to the CO2 emissions from 5.2 million homes energy use for one year, or the number of homes in the cities of Chicago, Los Angeles and Philadelphia combined. Across our global portfolio, we found that the rapid growth rates of sustainably managed Brazilian eucalyptus and pine plantations have the greatest capacity for carbon sequestration whereas the slower-growing dense hardwood forests of the US Northeast contain the greatest carbon stock.

¹ Conversion of carbon stock to CO2 emissions equivalent calculated using the EPA Greenhouse Gas Equivalencies Calculator. Number of detached housing units by city taken from US Census Bureau’s 2017 American Housing Survey.

Supporting women as consumers, small business owners, loan officers, doctors and employees plays a key role in our impact investing portfolio. In 2018, for example, we supported jobs for over 72,000 female employees, served over 900,000 female clients and reached over 116 million female beneficiaries.

Over 2017, we boosted energy efficiency of our 2007-2015 real estate portfolio by 21%, cut greenhouse gas emissions by 468,000 metric tons, reduced energy consumption by 895m kilowatt hours (equivalent to removing 98,000 cars).

Nuveen has five decades of focus on environmental, social and governance factors, and investing in companies with diverse boards and employees. Gender diversity is notably a top priority for Nuveen’s engagement with companies globally.
Our Policy Statement on Responsible Investing demands gender diversity in the workforce in our own organization as well as the companies in which we invest. The policy includes recommended actions to employees and suppliers stating boards and managers should all foster a culture of inclusiveness and acceptance of differences at all levels. The policy also encourages boards to foster diversity within the talent pipeline for management succession, as well as within their own board refreshment practices.

There has been much talk in the real estate market around health and wellbeing, and how a happy workforce has a positive effect on productivity and can contribute to profit. However, it seemed that the science of health and wellbeing is very difficult to measure and act on, and many of the solutions were not fit-for-purpose – often an ‘afterthought’ to existing building management platforms. We are aware that for an effective wellbeing solution to work, it has to be a dedicated product that is 100% human centric. Offering our real estate asset 40 Holborn Viaduct (see Vision) as a 16,000 sq m ‘Living Lab’ in the City of London, we worked with software company Arbnco to help create a new way to assess and enhance the wellbeing of buildings. The result was a solution which helped to reduce indoor pollutants, encourage activity and social interaction, and maximize natural light – all of which, we believe, have a positive effect on the customer and on the bottom line.

We believe that sound ESG practices and performance contribute to the long-term performance of companies we invest in. We also believe that addressing material ESG risk and opportunity factors in the investment decision-making process helps reduce investment risk and ensures that investor capital is used effectively. As such, Nuveen's AGR seeks to enhance long-term value by managing ESG risks that are material to our portfolio and investment strategies. This approach allows us to capitalize on global demographic and socioeconomic trends that have the potential to yield positive financial returns while contributing to sustainability.

Nuveen's AGR Partners works with Icicle Seafoods, one of its investee companies and one of the largest and most diversified seafood companies in North America, to manage and monitor several material ESG issues. Waste management is one such material ESG issue, and AGR's capital investments have helped facilitate improvements in processing operations that capture a higher percentage of edible flesh of each fish, reducing waste and maximizing yields of a healthy food item for a growing world population.

Nuveen’s Fruits of Employment (FoE) initiative gives individuals with disabilities access to competitive employment across four custom-farmed properties in California, Oregon and Washington. Based on the concept of equal pay for work of equal value, the initiative trains and employs workers with disabilities in the same job functions as other employees, thereby promoting inclusive employment and decent work for all. This is an important effort considering that in the U.S. only 41% of people with disabilities are employed, according to the U.S. Census Bureau.

As of March 2019, the program had 34 active workers — for a third of them it was their first time having a job. Some FoE workers have been on the same farms since the initiative began in 2009, and they have discovered new personal strengths by functioning as part of a team.

In 2013, Nuveen developed a set of KPIs to identify, assess, mitigate and monitor the relevant risk factors for sustainable farmland investing. These KPIs were developed in conjunction with Westchester and were specifically designed to allow us to assess our performance against the U.N.'s Principles for Responsible Investing Farmland Guidelines. In 2015, we updated these KPIs to improve our ability to monitor our progress against the Guidelines and an evolving set of farming practices. We continue to update and enhance these KPIs based on industry trends.

Real estate represents roughly 40% of global carbon emissions.¹ While part of the problem, it is also part of a potential solution. With energy prices predicted to rise, and emerging evidence of how a building’s environment impacts productivity and wellbeing, a property’s sustainability performance is becoming increasingly important to occupiers. Improving sustainability performance improves the attractiveness of the asset, keeps service charges lower and reduces operational costs for occupiers.
We have set a target to reduce the energy intensity of our real estate equity portfolio by 30% by 2030. This puts us at the forefront of meeting the low-carbon economy transition challenge.

¹ Environmental and Energy Study Institute, Buildings and Climate Change, 2014

The agricultural sector employs more than half of the workforce in India where smallholder farmers, holding two hectares or less, own close to 90% of farms. These farmers struggle to maintain steady incomes and are subject to the ups and downs of global commodity prices, weather and crop disease, to name just a few issues. Despite policy support from the Indian government, banks have struggled to lend to the sector.

Samunnati is a specialist non-bank lender who can navigate these agricultural risks. Started by an agricultural lending veteran, Anil Kumar SG, Samunnati sees itself as more an eco-system solutions provider than just a lender. They offer several agricultural lending products, but also market linkages and advisory services to its clients.

In May 2019, Nuveen led the Series D financing round with a $20 million investment in the company. “Samunnati has studied and tailored its solutions to India’s critical agricultural value chains, impacting significant numbers of smallholder farmers,” says Nuveen’s co-head of impact investing Rekha Unnithan. “And as they increase their reach, we’re seeing it truly fulfill its mission to make markets work for smallholder farmers.”

Preserving natural capital, and specifically making careful use of water, is a long-standing priority of Westchester, Nuveen’s farmland investment specialist. The passage of the Sustainable Groundwater Management Act by the California legislature in 2014 further emphasized the importance of managing water resources. The challenges likely to result from implementing the SGMA, which places limitations on extracting groundwater, have prompted Westchester staff to work diligently in pursuit of viable solutions. One key strategy is the creation of groundwater recharge basins – sites capable of receiving deliveries of excess surface water, which then percolates through the soil and recharges the underlying aquifer. There are limited sites that are suitable for developing these basins, as they must have ready access to surface water deliveries and contain sandy soils that allow for water to percolate rapidly.

In late 2018, Westchester identified a 40-acre site well-suited for use as a recharge basin adjoined to a 1,000-acre property targeted for pistachio development. With the necessary permits and approvals in hand, construction began in mid-August 2019 and was completed by the end of the month. Water began flowing into the pond on September 1. Based on historical rainfall patterns and water availability, Westchester estimates that the project will recharge an average of 550 acre-feet (179 million gallons) of water per year. This amount is sufficient to ensure the sustainability of the underlying aquifer, in addition to meeting the irrigation needs of the pistachio orchard. In reality, larger quantities will be recharged in wet years (like 2019) and smaller quantities will be recharged in normal and dry years.

Through this investment in sustainable groundwater management, investors are able to achieve a 20-year internal rate of return of over 14 percent, while also reducing long-term water supply risk.

Projects such as these are representative of the type of proactive management Westchester employs to improve property returns and benefit the environment.

Engaging with our farm operators, Nuveen strives for optimal water efficiency using a range of innovations, technologies and cooperative efforts. In 2014, the vineyard management team for affiliate Westchester Global Investment Management worked with the Napa Sanitation District in California to recycle treated wastewater for irrigation.

Nuveen invested $2 million in capital and property easements to develop a two-foot wide pipeline irrigating our properties and those of 30 to 40 other landowners in the district. Reusing wastewater cut irrigation costs by up to 65 percent, improving the bottom line for local farmers, and is expected to reduce surface and groundwater consumption in the area by 75 percent.

“Water is essential for all crop growth. On the land we manage in our diversified cropping portfolio, we require irrigation to supplement rainfall for some crops. Conserving water through innovation benefits our tenants, crop managers, the environment and investors.” Martin Davies, President and CEO, Westchester.

Healthy, well-managed soil is integral to ensuring agricultural productivity. Sustainable soil management means different things to different operators in different environments. But in a row crop system it ultimately comes down to the use of agricultural practices that support the health of both the crops and the ecosystems in which they grow.

Two Australian properties managed by Nuveen's Westchester embody these beneficial practices. Minimum or no-till farming techniques, compaction management and variable-rate nutrient application serve as examples of the daily practices used in their farm operations. For the past 25 years, one of Westchester’s row crop farmers in Western Australia has run his farm business as a no-till operation. In doing so, he has set the standard for a sustainable-farming practice that has become increasingly popular in the region and across Australia. No-till farming is key to managing the arid climate and some of the lighter soil types in Western Australia, where maintaining soil structure and conserving moisture is critical to the farming system. By leaving the earth minimally disturbed, soils can retain more water and are more resilient and fertile. Additional water is conserved by leaving the previous season’s crop residues in place – forming a protective cover over the soil, reducing evaporation, minimizing run-off and erosion and sequestering carbon. Selecting machinery is a key part of the equation and the design and width of all equipment is carefully considered. This allows the farmer to achieve optimal timing of key cropping operations, apply inputs evenly across the field and efficiently retain crop residues and minimize soil compaction.

Meanwhile, on the other side of Australia in Queensland, two brothers together with their families own and operate a fourth-generation sugarcane farming business. They have worked methodically for a decade to improve sustainability outcomes for farms they own and operate, by addressing soil compaction and nutrient management challenges. Soil compaction has become a greater problem over the years as farm equipment has become larger and heavier. To address this, the brothers are widening crop-row spacing on their farms, which means changing implements and increasing tire width to spread the load and reduce stress on the soil. It took the family seven years to implement these practices on their own properties. They are now in the process of making the same changes for properties they operate under their lease relationship with Westchester. The family is also using nutrient management strategies and variable-rate applicators to reduce nutrient run-off and preserve surface water quality, while also improving crop yields and reducing costs.

Big data shines a brighter light on what has been previously viewed as ambiguous information. Our ability to curate vast amounts of ESG data is helping us see investment opportunities in an entirely new light.

We recently launched Nuveen’s RI Data Platform — one of the first big data ESG technology platforms to enable better informed investment decisions that leverage our nearly 50 years of intellectual capital.

When it comes to investing in real assets—farmland, timber, energy and infrastructure—sustainability is essential for assessing risk and preserving long-term value. As just one example, we engage technology and data analysis in our due diligence for land purchases. We combine data from satellite imagery to understand historical land use patterns, while matching it to government global positioning system data used to substantiate land claims. This is particularly important in regions where we must adhere to regulatory frameworks that promote zero deforestation and sustainable agriculture.

The $10 trillion-dollar construction industry might be the world’s largest, but it is far behind many other industries in pursuing innovations that boost efficiency and sustainability. Buildings consume 40% of the world’s energy – and 70% of its electricity – a massive environmental footprint driven by inefficient heating and cooling systems, space utilization and sub-optimal use of windows and natural light.

Consider this: Only 1 watt of power makes it to end users out of 10 watts that are generated, due to transmission losses. This means that if buildings around the world were to make even incremental improvements in energy efficiency, it would conserve natural resources, mitigate climate change and preserve power for other vital social needs.

Nuveen’s impact investing team believed in the philosophy and promise of smart glass, and in January 2017 invested $50 million in innovative tech company View through a senior convertible note. Just as important, the team formed strong working relationships with View’s leaders to help them position for greater success, drawing on experience as a major investor – over $100 billion – in real estate. Independently, Nuveen's parent company TIAA has set aside $4.5 million to install View windows in its 730 Third Avenue midtown New York property – demonstrating its belief in the product’s ability to deliver financial, sustainability and health benefits.

Nuveen’s diversified approach to impact investing aligns with many of the U.N. Sustainable Development Goals (SDGs) targeting poverty and inequality, sustainable communities, resource conservation and climate change. In a rapidly growing market, the SDGs help to forge agreement among a broad group of stakeholders and mobilize capital to address the highest-priority needs determined by the U.N.

Non-governmental organizations (NGOs) and agriculture activists often voice their concern on the lack of transparency of farmland investors with respect to their investments. We make every effort to be transparent in our investments. Our publication of an annual Farmland Sustainability Report for the past seven years and our commitment to improve disclosure demonstrate our dedication to being transparent about our farmland investments to the highest extent possible while retaining sensitive commercial information as required by our business.

One of the more prominent urban consumer food trends is the rising demand for convenient, healthy foods. Consumers are increasingly seeking proteins and on-the-go food options that have not undergone extensive processing and therefore do not contain added and often hard-to-pronounce ingredients.

This change in demand patterns has been driven by a better understanding of the health benefits of protein in a balanced diet. Alongside this, there is a growing global middle class that is able to buy higher-value protein-rich snacks and on-the-go meals. The intersection of these trends has created a rising global demand for healthy, convenient animal and plant proteins. AGR Partners, Nuveen’s agribusiness investment specialist, is keenly aware of these trends and has made several investments that are expected to benefit from them. On the animal protein side, AGR has an ownership stake in Almark Foods, one of the largest producers of hard-cooked eggs and related egg products.

The company’s eggs are cooked, not boiled, which is a more cost-efficient and hygienic method that results in better uniformity and uses less water. The eggs are then automatically peeled, passed through a saline solution as an additional food safety step and placed into vacuum-sealed packages, which extend shelf life (thereby reducing food waste). Almark’s six-pack product is ideal for home consumption, while its two-pack is suited to on-the-go consumers.

AGR’s investment and operational assistance helped the company grow its footprint in the US south-west by constructing a new plant in Yuma, Arizona in 2018. This increased the company’s production capacity while reducing greenhouse gas emissions and freight charges to customers on the U.S.'s West Coast.

40 Holborn Viaduct in London is a prime example of how our vision and approach to investing can help to enhance occupier experience, drive energy savings and optimize maintenance – all in line with our goal of developing a sustainable portfolio where the customer comes first.

We partnered with Verco Advisory Services and smart prop-tech provider Demand Logic. Described as the ‘fitbit for buildings’, Demand Logic transforms a basic building of bricks and mortar into a living ‘digital asset’ where energy data drives energy performance. To deploy the solution, we collaborated to develop an innovative commercial model, where the energy savings from the Demand Logic solution were guaranteed, underwritten by Verco Advisory Services. This de-risked the investment and ensured that our customers received the benefit of lower energy bills. The project, first implemented at 40 Holborn Viaduct in 2017, is on track to drive a 20% reduction in energy use over a four-year period. However, in a market where real estate has moved from a product to a service, we wanted to go further with a holistic offering to deliver top-quality space that drives customer satisfaction. This requires much more than optimizing energy performance alone. Our aim was to partner with an innovative wellbeing solutions provider to help shape their product into a best-in-class solution for the institutional market. 

In California’s Central Valley, nearly all of our tree nut operators have begun using aerial spectral imagery to optimize water and nitrogen use. High-resolution, multispectral images provide farmers with accurate, real-time information about the water and nutrient status of plants, and flag irrigation leaks and blockages for repair. Images captured throughout the growing season let farmers gauge their progress in addressing issues. When combined with soil moisture monitoring programs already in place, this data-intense imaging technology helps to derive optimal value from every drop of water in this drought-challenged part of the U.S.

At an affiliate level, Nuveen Real Estate is dedicated to creating better outcomes for investors as well as changing the face of the real estate industry, particularly in gender diversity by being dedicated to empowering women through early training, access to role models and sponsorship programs. Nuveen Real Estate currently has four female fund managers and eight female portfolio managers. Our gender split currently sits at 55% male versus 45% female. Although progress is still to be made, these numbers indicate a step in the right direction with an increase of 3 percentage points since 2016.¹ Testament to our focus in this area, we recently sponsored Estates Gazette’s Future Female Leaders program, a U.K.-based six-month public speaking program focused on females in the real estate industry.

Taking the lead from our parent company, we also recognize the importance of female representation on boards and committees across the global real estate function. The number of women spread over nine committees, accounts for 22%, a number we are continually aiming to increase through diversity initiatives.² This compares to the average representation of women on REIT boards at 15.5%, which too has increased by 8 percentage points in the past decade.<sup>3

1</sup> Note these figures are for Europe & Asia Pacific only. 
² Committees included are Global Executive Leadership Team, Europe & Asia Pacific Leadership Team, U.S. Leadership Team, European Investment Committee, Asia Pacific Investment Committee, European Real Estate Debt Investment Committee, U.S. Investment Committee, Europe & Asia Pacific Operating Committee, U.S. Operating Committee. 
³ Wells Fargo & Co., 2018

We recently installed solar panels on Dalton Park, an outlet shopping and leisure center in the northeast of the U.K. Helping to future-proof the center against energy price rises and supply shortages, the property will generate over 200,000 kWh of electricity each year, saving 70 tons of CO2 annually, reducing energy service costs, and delivering a stable income stream for investors.

One hundred percent of the renewable energy generated is used on site. It boosts investment returns because the cost savings on reduced consumption of national-grid electricity is greater than revenue generated by exporting the same amount of electricity to the grid.

“Responsible property investment is about more than just reducing the carbon footprint. It’s about understanding and managing external risks that may jeopardize our investments. And it’s about identifying opportunities that will protect and enhance value in the face of changing environments.” Abigail Dean, Head of Sustainability, Real Estate

In August 2018, we deepened our commitment to discourage deforestation by adopting a Zero Deforestation Policy for our Brazilian farmland investments. This new policy reinforces our commitment to ensuring that our investments in Brazil discourage the depletion of forested areas and native vegetation on the land we are managing, or intend to acquire, for our investors.