Nuveen's global impact strategy invested $20 million in Samunnati, an Indian non-bank finance company, in May 2019. Samunnati provides lending and working capital solutions to India's agricultural value chain, including Farmer Producer Organizations, indirectly improving the lives of the country's smallholder farmers, according to Nuveen.
Courtesy of NuveenNuveen’s private markets group has been at the forefront of impact investing for more than a decade with a strategy focused on finding companies with market-based solutions aimed at creating a “more inclusive world” and a “just climate transition,” says Rekha Unnithan, the firm’s co-head of impact investing.
The New York-based firm began offering a global impact strategy in 2012 for the TIAA General Account that includes a growth equity portfolio focused on inclusive growth and resource efficiency, and a real estate portfolio centered on affordable housing. In 2014, TIAA bought Nuveen, which serves as TIAA’s global investment manager.
Last year, the firm launched the Nuveen Global Impact Fund to expand its private equity offering to third-party investors. It announced its first close on US$150 million in new commitments in July, including US$50 million from Velliv, a Danish pension fund. Nuveen plans to close the fund when it reaches US$300 million, Unnithan says.
Together, the two pools of capital managed by Nuveen’s private markets impact group exceeds US$1.2 billion.
Nuveen has been involved in impact almost since the sector’s beginning, serving among a primary group of investors that in 2009 formed the Global Impact Investing Network (GIIN), a group dedicated to research and strengthening the impact field through development of best practices.
“We were doing this well before it was cool,” she says. “We saw the need for private capital to play a role on these issues of people, planet, and solutions.”
While Nuveen can’t reveal results for its private market investments, Unnithan says they are “in line with the expectations of our clients,” and that the target net internal rate of return for the private equity portion of the fund is between 18% and 20%, while the target for the real-estate portion is between 9% and 11%.
Penta recently spoke with Unnithan about Nuveen’s impact strategy and how the firm assesses its impact.
Getting Started in Impact
When Nuveen first began exploring growth-equity impact investing, the firm came across entrepreneurs and companies that were just starting out with an aim of tackling big issues—everything from lack of financial access, to lack of proper nutrition, health care, and education.
“These basic services are built for middle- and high-income customers,” Unnithan says. “The low-income customer is drastically underserved.”
While there was a lot of innovation, it was difficult to take on the risk of investing initially. As growth-equity investors, Nuveen sought to avoid startups and instead invest with companies that had a track record, including a demonstrated history of revenue and profits. With few of those kinds of companies around, Nuveen’s initial approach was to back fund managers already in the sector, “to learn from them as well as to participate in these markets,” Unnithan says.
As the sectors that interested them matured, and companies began to grow and needed capital to scale, Nuveen formed a direct-investment team to go after opportunities, she says. Today, about 80% of the fund is in direct investments, while the rest is strategically placed in funds that invest in earlier stage companies, less familiar niches, or in a part of the world the firm wants exposure to, she says.
Net Impact
Net financial returns are critical, but for impact investors, the net positive social or environmental effects from investing in one company or another ranks high.
Nuveen invested $10 million in Advanced Battery Concepts in October 2020.
Courtesy of NuveenThere are many ways impact investors try to assess impact, and Nuveen, as a founding member of the GIIN and a long-time investor in this arena, employs some of the most well-known investment management techniques.
According to its annual report, Nuveen asks its investee companies “what matters most” to them and what data they already collect to measure results. They also use a “top-down” approach, to look at how its companies perform against standard industry frameworks such as IRIS+ (developed through the GIIN) and the U.N. Sustainable Development Goals (SDGs).
Nuveen also examines potential negative impacts their investee companies may make, a step impact investors sometimes ignore. For instance, lithium ion batteries—which are necessary for electric vehicles—generally are praised for reducing carbon dioxide emissions. But these batteries can cause social or environmental problems that are often overlooked.
To account for that, Nuveen has developed what it calls a “net impact score” that is aligned with the SDGs. Its US$10 million investment in Advanced Battery Concepts (ABC), a Clare, Mich.-based company that makes “cleaner, greener, thinner, fully recyclable lead-acid batteries” is one example, Unnithan says.
ABC’s technology improves battery performance and relies on less raw material, the annual report said. These batteries are expected to be used in electric bikes within emerging markets and to boost global electric-grid storage capacity.
The company gets a net impact score of 17, with high marks of +3 against SDG No. 13 (climate action) for enabling the clean energy transition and against SDG No. 12 (consumption and production) for being “100% recyclable with 2-3x longer life cycle and 45% more material efficient,” Nuveen said.
The score “begins to get at a way to articulate more holistic impact,” Unnithan says.
Beyond Investing
The companies that Nuveen invests in for its private markets, also have benefited the firm’s real estate group’s efforts to meet its own carbon-reduction goals.
“We are finding the types of companies that serve those large value chains in the built environment, things like retro-fits, HVAC technology, and green building materials,” she says.
For example, the fund has invested in View, Inc., a Milpitas, Calif-based company that creates energy-efficient glass used in commercial construction. The glass cuts glare, eliminating the need for blinds, and can cut the carbon footprint of a building by 20% to 40%, depending on how widely it’s used, Unnithan says.
Earlier this year, the glass was installed in TIAA’s 27-story global headquarters building in Midtown Manhattan, which was recently renovated by Nuveen Real Estate and its development advisor, Taconic Partners, View said in a press statement. More than 1,100 new smart windows were installed in the building to meet a local New York law aimed at reducing emissions from buildings by 40% over ten years.
“Our colleagues on the real estate side use this glass in buildings when they make sense,” Unnithan says. Although the tie between the groups is not direct, “it’s helpful to have those insights for our team.”
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