Shortlisted for PRI Awards 2024: Recognition for Action – Nature
Organisation: Nuveen
Signatory type: Investment manager
HQ country: United States of America
The approach, initiative, or process
Our economies, livelihoods and well-being all depend on our most precious asset: nature. As a result, Nuveen is raising its expectations of 50 companies exposed to significant nature-related financial risks. These firms comprise nearly one-quarter of the calculated direct impacts to nature attributable to Nuveen’s enterprise corporate holdings. Our Nature Stewardship Initiative focuses on promoting transparency and consistency in nature-related disclosures.
Background and context
The economic benefits provided by nature are crucial to our livelihoods, and large amounts of economic value are dependent on nature and its services. However, the valuation of natural capital in financial markets is not well understood, and biodiversity is likely not accurately priced in today’s market.
Meanwhile, economic activity has a direct, and often unpriced, effect on global biodiversity. We believe it is imperative to understand the risks and opportunities associated with a greater emphasis on natural capital in investment processes.
Thus, our initial nature risk initiative aims to:
- lead market discussion of quality nature-related disclosures;
- hold companies accountable for their commitments to appropriately value natural capital;
- catalyse market integration of a value for nature that will support long-term, sustainable business operations.
Frameworks and disclosures
The landmark agreement from the United Nations Biodiversity Conference (COP 15) in 2022 on nature protection through to 2030, and the final recommendations from the Taskforce on Nature-related Financial Disclosures (TNFD) in 2023, have created momentum on global action.
While the TNFD framework is intended to provide a common standard for disclosing nature-related risk, the current state of investment-relevant information is captured through a mosaic of voluntary and regulatory reporting regimes, with many gaps remaining.
Nuveen recognises the need for further efforts to create a consistent, comparable and reliable set of disclosures that can support integration of nature-related dependencies and impacts into investment decision-making. This is why our initiative is focused on promoting transparency in nature-related disclosure.
Portfolio analysis and selection process
We believe a key distinctive and differentiated feature of our initiative is the detailed quantitative portfolio analysis we undertook across our equity and fixed income holdings.
To be consistent and objective, we followed the Partnership for Biodiversity Accounting Financials standard to the greatest extent possible by translating the IPBES key drivers into three key biodiversity impact themes. We considered these to have the highest data availability and present the highest opportunity for action:
- use of natural resources
- land use change
- waste/pollution
We identified a target list of companies that represent a market cross section, emphasising the sectors with the largest negative impacts on nature and the highest potential impact to the value of assets under management. We conducted three key steps to create the target list:
- Quantification: assessment of company revenues derived from business activities with material impact on land use, water use and pollution;
- Attribution: attribution analysis based on the nature impact attributable to our holdings;
- Prioritisation: selection of the 50 companies with the largest impact attribution across 16 industries.
Nature assessment framework
Nuveen relies upon our proprietary Transparency, Accountability, Impact framework to guide assessment of company maturity on ESG themes and identify areas where we can use stewardship to achieve positive outcomes.
The framework helps align our expectations on company reporting with key performance indicators (KPIs) that can help us identify de-risked investment opportunities or emerging investment solutions. We believe it appropriately balances materiality with the feasibility of working with companies toward nature-positive solutions that will support long-term investment goals.
While keeping to the overall framework of TNFD, we have focused on company alignment to guidance from the Science Based Targets Network (SBTN). We have also sourced industry-relevant KPIs from various ESG reporting standards that have general market acceptance, such as CDP, GRI and SASB. Specific KPIs for this initiative are outlined in the next section.
We believe this approach strikes the appropriate balance of supporting market coalescence on disclosure expectations; offering companies specific guidance and efficient pathways for reporting; and providing indicators of potential investment opportunities in circularity, waste management and natural resources solutions.
Engagement in action
For all targeted stewardship initiatives, Nuveen has a three-year strategy to drive desired outcomes on financially material issues. The strategy includes ongoing engagement and escalation measures, such as supporting shareholder proposals and voting against boards of directors to ensure our perspective is taken into consideration.
Through engagement and proxy voting, we ask companies to make certain changes or commitments and deliver meaningful progress towards them, such as increasing disclosure, setting a new target or achieving a goal. We keep track of multiple KPIs categorised under our Transparency, Accountability, Impact framework. When the company meets a certain KPI, we consider that to be an engagement success, while recognising that our efforts are one of many contributing factors. An engagement success translates into an outcome once the company publicly discloses a certain action.
Since launching our Nature Stewardship Initiative in December 2023, we have sent letters to the boards of each target company to outline our perspective and expectations. We are actively conducting research, assessment and engagements, and we will report on outcomes achieved as the initiative progresses.
While this is a new targeted initiative in our stewardship program, bringing more structure to our activities, the topic of nature is not new for us. Indeed, this initiative builds on stewardship activities and learnings from engagements in previous years: we engaged with 29 companies on nature-related topics in 2022-2023 (88 since 2020).
The measures to ensure transparency and generate outcomes
The key objective of Nuveen’s Nature Stewardship Initiative is promoting transparency and consistency in nature-related disclosures from companies.
We also recognise the importance of our own transparency and are committed to providing clients and other stakeholders with reporting on our activities, as evidenced by the supporting documents.
We believe transparency is particularly important in the assessment framework used in this initiative, which, as previously mentioned, is based on TNFD and other market standards.
Below we provide a snapshot of the 25+ KPIs across our Transparency, Accountability, Impact framework that we are using to assess company maturity on nature reporting and opportunities to enhance or protect natural capital:
Transparency: basic reporting
- disclosure of board-approved strategy
- relevant information around key material impact drivers
- stakeholder identification and engagement process
Accountability: strategy/plans for risk management
- adoption of policies and goals to address key material risks and impact drivers
- implementation of related targets and practices
- engagement with stakeholders, including grievance mechanisms
Impact: materialisation of plans
Reduced nature impacts by:
- limiting or mitigating natural asset degradation
- actively improving the value of natural assets
Find out more about Nuveen’s Nature Stewardship Initiative, including the full list of KPIs.
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