Deep ESG Roots
Amy O’Brien, head of responsible investing at Nuveen, says the firm’s responsible investing approach has its roots in TIAA, Nuveen’s parent company, whose philosophy goes back nearly five decades. Nuveen’s parent firm’s involvement in the business case behind social issues means ESG investing isn’t just a product line.
“The mandate for my team is really to drive this holistic framework across all of Nuveen,” O’Brien said. “This means working in partnership with portfolio managers and analysts. It’s not doing the work for them; it’s doing the work with them.”
The responsible investing team not only offers specialized expertise on research and data, but also client expectations, when it comes to ESG funds.
“People generally aren’t looking at these topics in black and white,” she noted. “They know there’s a middle ground, and we brought that observation to how we built out the index upon which the ETFs are based.”
Socially responsible investor demand is growing, albeit from a low base, and remains a small part of the total ETF market. Overall, ESG ETF assets under management rose from 63% over a year ago to $7.9 billion versus the $3.5 trillion invested in the ETF industry.
Kremenstein says 2019 has seen a good start in terms of flow for the ESG products: “The amount of reverse inquiry we’re getting from clients is phenomenal. We think the investment advisors now understand why. Really it’s a question of showing them how, which is why we’ve moved very aggressively into portfolio implementation and helping advisors build the portfolio.”
Coming Into Their Own
The equity products will celebrate three years at the end of 2019. If the strong performance continues, that’ll attract further interest. He understands the skepticism that investors might have with ESG: They don’t want promises that a theme adds value, they want to see that it does.
Early socially responsible ETFs overall “weren’t very good,” Kremenstein says, but the improvements in methods, techniques and data demonstrate ESG can generate alpha: “We just have to show the marketplace we can deliver value without compromising the core ESG methodology.”
In addition to NUBD, Nuveen has plans for other bond funds, but couldn’t speak directly on future offerings. But the longer-term plan, he says, is to build out a robust platform that incorporates ESG.
“We want ESG investors to have the same choice of asset classes and strategies that non-ESG investors have,” Kremenstein said. “We don’t need to have 19 different types of multifactor large-cap strategy like you have in the non-ESG space. But we want the ESG investor to not have to compromise their asset allocation to remain aligned with their ESG mandate.”