Institutional Investors

Nuveen: The Innovator in ESG/SRI Investing

Martin Kremenstein is senior managing director and head of retirement products and ETFs at Nuveen, a TIAA company.

Prior to joining Nuveen in 2015, Martin managed the ETF build-out atDeutsche Bank, where he launched and oversaw products in the commodities,currency, equity (international and domestic) and fixed income space. Prior toDeutsche Bank, Martin worked in risk management at JPMorgan Chase.

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Institutional Investors
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Prior to joining Nuveen in 2015, Martin managed the ETF build-out atDeutsche Bank, where he launched and oversaw products in the commodities,currency, equity (international and domestic) and fixed income space. Prior toDeutsche Bank, Martin worked in risk management at JPMorgan Chase.

Martin earned his B.A. from the University of Leeds.

I spoke with Martin on October 30 at the Schwab IMPACT conference in Washington, DC.

Tell me a little bit about your role at Nuveen and your focus within the world of financial advisors.

I have two main focuses. I have the retirement products business – our target-date funds, the life-cycle funds, and the life-cycle index funds. I also have the exchange-traded fund business, which is a new build. We’ve been going for about two years, and have approximately $550 million in assets under management across 11 products.

Let’s talk about ESG/SRI investing. What is the overall appetite for advisors for those products, and what do you think is driving that right now?

The appetite among financial advisors for responsible investing is pretty strong, and continues to grow stronger. The majority of our ETFs are ESG. Of the 11 ETFs in our product suite, eight of them are ESG, and about $400 million of our $550 million or so in assets are in ESG assets.

We are seeing appetite from clients across the board. The traditional surveys tell you that it’s women and millennials that are more interested in values-based and responsible investing, but we are starting to see it with baby boomers and across the market.

There are a couple of things driving advisor interest. First of all, there’s client demand. How do you incorporate responsible or values-based investing into your investment process? More and more financial advisors are having the question put to them by their clients, and by their clients’ children when they do succession planning, and they need to have a good, solid answer.

The other thing that’s really helping to drive it is the fact that for a long time, the knock on ESG has been that it underperforms. We’re showing that now it doesn’t. In fact, we can present it as a way to add value.

We come across this a lot with the research that we’ve done into ESG/SRI investing. Clearly one of the biggest concerns among advisors is whether there’s a sacrifice in diversification, and related to that a sacrifice in performance. The academic theory would suggest that there has to be. But what is the best way that you’ve found to counter that concern?

The products that we’ve built are designed to be asset-class building blocks for portfolio construction. Among ESG ETFs, we have large-cap growth, large-cap value, mid-cap growth, mid-cap value, small caps, developed markets, emerging markets and core fixed income. They’re all designed to perform in line with the asset class that they are representing.

When we look at how we construct the ESG portfolios, we go through the factors that we score companies on. Under “E,” it’s resource wastage, climate change, water usage and pollution. Looking at it another way is whether or not a company manages its material inputs efficiently. If it does, it’s going to get a higher score under “E”. You can look at “E” as efficiency rather than environmental.

Under “S,” we look at whether companies are doing well on labor relations, customer relations and regulation issues. Do they get on with the regulators? Do they get on with their workers and their customers? These, again, are just more signs of a well-run company.

Under “G”, we find that’s the one that people most intuitively get. Most financial advisors understand a company with good governance is generally a better run company. You take all of those together and you can say, “Look. This is another way of looking for quality without going into the balance sheet. It’s another way of looking for well-run companies.”

Then you have controversy scoring. If a company has a significantcontroversy, it can materially reduce its ESG score. For investors andfinancial advisors, this is a risk-management overlay. I say to people,”Even if you’re not an ESG investor, you should look at all the singlestocks in your portfolios. What are their ESG scores?” If they movedramatically downwards, it may be an indication of trouble to come.

Read the full article here by Robert Huebscher, Advisor Perspectives


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