The Trump Administration’s dismissal of climate change and its rollback of Obama-era environmental policies have failed to slow investor interest in the environment and may actually be stoking it, according to Nuveen, the asset management arm of TIAA.
The majority of investors (81 percent) responding last year to Nuveen’s Fourth Annual Responsibility Investing Survey said they want their investments to make a positive impact on environmental sustainability, compared with 73 percent in 2015. Conversations on responsible investing between advisors and investors increased 200 percent over the past year, the survey also found.
“We’ve seen the change at the national level so dramatically shift from being concerned about climate change that individuals are taking it upon themselves to find investments that maybe do have a direct and measureable environmental impact,” said Steve Liberatore, a managing director at Nuveen and manager of the TIAA-CREF Social Choice Bond Fund, which has $3.5 billion in assets.
The Environmental Protection Agency sets national standards, but most environmental legislation is done at the state and local level where “you have much more widely accepted belief that climate change is occurring, it’s manmade and that it’s an issue that has to be addressed,” he said.
When he talks to municipalities, members of all political parties understand the ramifications of climate change and are looking for ways to solve it, he said. Nuveen recently did a deal with Miami, which has a Republican mayor, to help it finance green improvements to help mitigate flooding attributed to climate change.
Amy O’Brien, global head of responsible investing at Nuveen, is seeing more investor interest in responsible companies, including those that are helping solve some of the environmental problems we face.
“This myth that we’re still talking about a niche market built on a premise of concessionary returns is also a thing of the past,” she said.
A record 37 new sustainable funds, a mix of mutual funds and ETFs, were launched in 2018, and 133 new sustainable funds have launched since this growth trend began in 2015, according to Morningstar’s latest Sustainable Funds U.S. Landscape Report. A number of existing funds have added sustainability criteria—62 in 2018 and 32 in 2017—which rarely happened before.
Sustainable funds attracted their third year of record net flows in 2018, while the overall U.S. fund universe netted its lowest calendar-year flows since 2008, noted the report. According to Nuveen, net inflows for the TIAA-CREF Social Choice Bond Fund have grown nearly 93.2 percent over the past five years, 75.6 percent over the past three years, 34.5 percent over the past year and 16.1 percent in the first four months of 2019.
Investors don’t have to sacrifice performance for sustainability. According to the Morningstar report, 63 percent of sustainable funds finished in the top half of their respective category in 2018, with 35 percent making the top quartile. The top-performing sustainable intermediate-term bond funds outperformed the Bloomberg Barclays U.S. Aggregate Bond Index last year, including the TIAA-CREF Social Bond Fund, which has beat the index every calendar year since its 2012 inception.
“As interest in sustainable investing has grown, so has the idea that it can and should encompass the investor’s entire portfolio,” said Jon Hale, author of the Morningstar report and head of sustainable investing at Morningstar, in an email response. “That’s now possible because of the greater number of sustainable fixed-income funds.”