Responsible investing
/ri-'spän(t)-sə-bəl in-'vest-ing/ noun
An investment philosophy that incorporates environmental, social, and governance factors (ESG), and/or additional impact metrics into investment analysis, portfolio construction and ongoing monitoring across asset classes with the objectives of enhancing long-term performance, managing risk and/or aligning with client values.
Our ABCs of Responsible Investing (RI) is intended to serve as a guide to demystify the frequently used terms in the RI world and encourage everyone to join the conversation. We also include case studies throughout the document that bring some of these key terms to life.
Glossary
Affordable housing
Housing which is deemed affordable to those with a household income at or below the median as rated by the national government or a local government by a recognized housing affordability index.
Source: us.gov
Best in class
Selecting issuers that demonstrate better ESG characteristics within a particular sector, industry or peer group, and achieve a rating above a defined threshold.
Biodiversity
Biodiversity, or biological diversity, is the variety and variability of life on Earth. Biodiversity is a measure of variation at the genetic, species, and ecosystem level. In the context of responsible investing, living things on our planet has been declining at an alarming rate in recent years, mainly due to human activities, such as land use changes, pollution and climate change.
Board quality
Boards play a critical role in crisis management, oversight, and risk management — setting the tone at the top before incidents occur. From an investment standpoint, issues such as director independence, board composition, experience, perspectives and tenure are important because they protect shareholder value. Board composition, executive compensation, business ethics and accounting practices all reflect a board’s judgment and priorities.
Carbon footprint
The sum of greenhouse gas (GHG) emissions - primarily carbon dioxide and other GHGs - generated by an individual, activity, company or country.
Circular economy
The circular economy is a model of production and consumption, which involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible.
Climate change
A change in global or regional climate patterns, in particular a change apparent from the mid- to late-20th century onward — longterm warming — attributed largely to the increased levels of atmospheric carbon dioxide produced by the use of fossil fuels.
Controversial business involvement
Refers to a security issuer’s activity in an industry that can cause significant social harm. Industries include tobacco, alcohol and firearms, among others.
Corporate social responsibility (CSR)
A company’s efforts to evaluate the effect of its operations, processes and philanthropy on the broader community and to set policies and practices that maximize the positive impact of its activities on the company’s key stakeholders.
Divestment
The sale or disposition of securities or other assets based on corporate behavior that is not aligned with specific environmental, social and governance objectives, values or convictions. See responsible investing – other RI approaches .
Diversity, equity, and inclusion (DE&I)
Diversity: Acknowledges all the ways people differ: race, sex, gender, age, sexual orientation, disability, socioeconomic status, religious beliefs and more.
Equity: Recognizing that we do not all start from the same place and must acknowledge and make adjustments to imbalances.
Inclusion: The act of welcoming, supporting, respecting and valuing all individuals and groups.
Emissions avoided
Positive, intentional differences in emissions reported year over year as a means of accelerating decarbonization.
Engagement
A dialogue between an investor and an issuer focused on positively influencing corporate behavior on a variety of topics, including ESG issues.
Environmental, social and governance (ESG)
Typically refers to the factors and issues investors consider regarding a firm’s sustainable business practices.
► Environmental: A responsible investing factor dealing with climate impact, energy consumption, biodiversity, waste management and natural resource use.
Example: Waste management
Innovative packaging can reduce waste while also driving down material and transport costs.
► Social:A responsible investing factor dealing with employee engagement and development, labor relations, human rights practice, product safety and consumer protection.
Example: Health and safety
Effective health and safety programs can mitigate unexpected costs caused by workplace injuries, e.g., medical expenses, workplace disruption, productivity loss
► Governance: A responsible investing factor dealing with management structure, board accountability and independence, executive compensation, audits and internal controls and shareholder rights.
Example: Board diversity
A wide range of competencies, knowledge, and perspectives can lead to better decision-making and more effective corporate governance.
ESG integration
Considering financially material environmental, social and governance factors within in the investment decision-making process.
EU taxonomy
Classification system established to clarify which investments are environmentally sustainable, with the goal of allowing companies to share a common definition of economic activities that can be considered environmentally sustainable.
Source: europa.eu
Global Real Estate Sustainability Initiative (GRESI) and Benchmark (GRESB)
An investor-driven organization that assesses the sustainability performance of real-asset-sector portfolios and assets in public, private and direct sectors worldwide. The index offers environmental, social and governance data, scorecards, benchmark reports and portfolio analysis tools.
Green
Generally refers to the consideration of climate change and environmental impacts in portfolio construction, i.e., investments in clean tech, renewable energy and energy efficiency. See responsible investing – other RI approaches .
Human capital management
A comprehensive set of practices for recruiting, managing, developing and optimizing an organization’s human resources.
Human rights
Moral principles or norms that describe standards of human behavior and are protected as natural and legal rights in municipal and international law.
Impact
The positive or negative, intended or unintended outcomes for society and/or the environment from an investment.
Impact investing
Investing to achieve intentional positive social and/or environmental outcomes. This requires measuring and reporting on impact metrics, key performance indicators and demonstration of intentionality of investee and investor.
Low carbon strategy
Seeking to lower a portfolio’s overall carbon footprint by favoring companies with lower current carbon emissions, no fossil-fuel reserves, or other green investments. Low carbon strategies may satisfy clients seeking “fossil-fuel-free” and “green” investments. See responsible investing – other RI approaches .
Low carbon economy
An economy based on low carbon power sources that has a minimal output of greenhouse gas (GHG) emissions into the biosphere, but refers specifically to the greenhouse gas carbon dioxide. The Paris Agreement commits to the transition to a global low carbon economy over the next 30 years, which many believe will bring substantial benefits both for developed and developing countries and avoid catastrophic climate change.
Materiality
Information that is reasonably likely to be important to investors in making investment decisions. Financially material in the context of ESG refers to relevance of a specific factor that could have a significant impact, positive or negative, on a company’s financial value.
Natural capital
Natural capital refers the world’s stock of natural resources.
Negative/norm based screening
Exclude sectors, companies, countries that do not meet minimum standards due to unacceptable downside risk or value misalignment. Also referred to as exclusionary screening.
Net zero carbon emissions
Cutting greenhouse gas emissions to as close to zero as possible, with any remaining emissions re-absorbed from the atmosphere, by oceans and forests for instance.
The term net zero is increasingly used to describe a broader and more comprehensive commitment to decarbonization and climate action.
Paris Agreement
An accord within the United Nations Framework Convention on Climate Change addressing greenhouse-gas-emissions reduction, adaptation and finance, beginning in year 2020. At the December 2015 Paris conference, 195 countries adopted the first-ever universal, legally binding global climate deal. The agreement sets out a global action plan to put the world on track to avoid dangerous climate change by limiting global warming to below 2°C.
Proxy voting
A ballot cast by one person on behalf of a corporate shareholder who is unable to, or prefers not to attend a shareholder meeting.
Principles for Responsible Investment (PRI)
Principles for Responsible Investment (PRI or UNPRI) is a United Nations-supported international network of investors working together to implement its six aspirational principles, often referenced as "the Principles". Its goal is to understand the implications of sustainability for investors and support signatories to facilitate incorporating these issues into their investment decision-making and ownership practices. In implementing these principles, signatories contribute to the development of a more sustainable global financial system.
Source: UNPRI
Principles for Responsible Investment in Farmland
A set of guidelines developed by a group of UN Principles for Responsible Investment (PRI) signatories. The principles have evolved into the PRI Farmland Guidelines, which are designed to guide institutional investors that wish to invest responsibly in farmland.
Source: UNPRI
Responsible investing
An investment philosophy that incorporates environmental, social and governance factors, and/or additional impact metrics into investment analysis, portfolio construction and ongoing monitoring across asset classes with the objectives of enhancing longterm performance, managing risk and/or aligning with client values.
RI principles at Nuveen include:
► ESG integration: we aim to consider financially material environmental, social and governance factors within in the investment decision-making process.
► Stewardship: we aim to advance responsible investing practices and seek to preserve and enhance long-term shareholder value.
► Impact: we seek to drive positive environment and social outcomes through our investing practices.
Other RI approaches include:
► Best in class: Selecting issuers that demonstrate better ESG characteristics within a particular sector, industry or peer group, and achieve a rating above a defined threshold.
► Divestment: The sale or disposition of securities or other assets based on corporate behavior that is not aligned with specific environmental, social and governance objectives, values or convictions.
► Green: Generally refers to the consideration of climate change and environmental impacts in portfolio construction, i.e., investments in clean tech, renewable energy and energy efficiency.
► Low carbon: Seeking to lower a portfolio’s overall carbon footprint by favoring companies with lower current carbon emissions, no fossil fuel reserves, or other green investments. Low carbon strategies may satisfy clients seeking “fossil-fuel-free” and “green” investments.
► Negative/norm based screening: : Exclude sectors, companies, countries that do not meet minimum standards due to unacceptable downside risk or value misalignment. Also referred to as exclusionary screening.
► Social and environmental impact: : An approach that actively seeks to deliver a competitive return alongside a positive, measurable social or environmental outcome.
► Thematic: Targets investment themes or assets that contribute to specific issues or outcomes, e.g., climate change, gender.
► UN Sustainable Development Goal (SDG) alignment: Aligning investments to the Sustainable Development Goals – e.g., poverty, health, education, climate change and environmental degradation – to help connect business strategies, objectives and outcomes with global priorities.
Stewardship
Advancing responsible investing practices with the aim of preserving and enhancing long-term shareholder value.
Engagement: A dialogue between an investor and an issuer focused on influencing corporate behavior on a variety of topics, including ESG issues.
Proxy voting: A ballot cast by one person on behalf of a corporate shareholder who is unable to or prefers not to attend a shareholder meeting.
Sustainable Development Goal (SDG) alignment
Aligning investments to the Sustainable Development Goals — e.g., poverty, health, education, climate change and environmental degradation — to help connect business strategies, objectives and outcomes with global priorities. See responsible investing – other RI approaches.
Sustainable investing
An umbrella term often used interchangeably with responsible investing. See responsible investing.
Sustainable Development Goals (SDGs)
A set of United Nations goals with a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity. Today, the 17 UN SDGs are an internationally accepted, outcome-oriented roadmap to sustainability for organizations in all sectors.
Task Force on Climate Related Financial Disclosures (TCFD)
Climate-related financial disclosure recommendations designed to help companies provide better information to support informed capital allocation. Disclosures are structured around four thematic areas that represent core elements of how companies operate: governance, strategy, risk management, and metrics and targets.
Source: TCFD
Taskforce on Nature-related Financial Disclosures (TNFD)
Disclosure recommendations and guidance for organizations to report and act on evolving nature-related dependencies, impacts, risks and opportunities. The recommendations and guidance will enable business and finance to integrate nature into decision making, and ultimately support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.
Source: TNFD
Thematic
Targets investment themes or assets that contribute to specific issues or outcomes, e.g., climate change, gender. See responsible investing – other RI approaches.
UN Global Compact
Strategic partnership to drive business awareness and action in support of achieving the UN Sustainable Development Goals.
Source: UN
Use of Proceeds
Bonds where the proceeds are devoted to financing new and existing projects or activities with direct and intentional positive impacts.
Blue bond: Bonds issued to finance marine and ocean-based projects that have positive environmental, economic and climate benefits.
Green Bond: Bonds issued to fund or refinance specific climate-related or environmental projects.
Orange Bond: Bonds issued to finance projects associated with gender equality or projects that have an intentional gender lens.
Sustainability Bond: Bonds issued to finance Green and/or Social projects.
