Insurance Asset Risk Awards 2023 - North Americas

Nuveen: climate works for insurance investors

Joe Pursley, head of insurance, Americas, at Nuveen, talks about how the asset manager has been helping insurers achieve their environmental goals via its innovative investment approach

How does your climate initiative benefits insurers?

Joe PursleyThe founders of Greenworks Lending—the company Nuveen acquired in 2021 and has since rebranded as Nuveen Green Capital—initially set out to create a financing product that better aligns the benefits commercial building owners realize from making environmental improvements to their buildings. The demand from borrowers was overwhelming and we began to securitize Commercial Property Assessed Clean Energy (C-PACE) loans in 2017. By creating our securitization program, it became clear that we'd developed an extremely compelling insurance investment offering. C-PACE provides insurers with access to very high quality, fixed rate cash flows with maturities that can extend to 20 years – three traits valued highly by life insurers in particular. In addition to the fundamental investment factors that make C-PACE compelling to insurers, C-PACE-backed investments can be classified within impact buckets because the proceeds from our lending leads to a direct and quantifiable carbon reduction or climate mitigation for the commercial properties. This 'impact' portion of the investment has become much more important and prevalent with insurance companies today and this is a trend we see continuing in the future.

How much appetite have you seen for sustainable investing in the US? Do you see interest in insurance-specific products like your own growing?

Datasets like Cerulli suggest the US insurance industry alone consists of over $6 trillion of investable assets. Combine that amount of money with the intrinsic business case that insurance companies need to support positive environmental and societal change, and it's not difficult to see why many firms, Nuveen and TIAA included, feel we are only at the beginning of insurance capital allocations to sustainable investments. What's going to really drive growth and adoption are sustainable investments that deliver a market rate of return. If the investment can do that, and also generate positive outcomes for society and/or the environment, data suggests insurers will make the sustainable or 'impact' allocation over a 'non-sustainable' or 'non-impact' allocation. We think that this trend is only set to increase over time.

Importantly, US insurance companies today are beginning to bifurcate responsible investing into 1) ESG risk factors and 2) sustainable or impact investing. The nice thing about sustainable and impact investing strategies is the direct and measurable key performance indicators that come along with the market rate financial return. These KPIs really help insurers track positive outcomes over time and report those to stakeholders in sustainability reports—something we see more and more insurers produce every year. C-PACE is a great example of that, but so are things like renewable energy infrastructure and affordable housing.

What are the key sustainability themes you see developing in the future for US insurers?

Firstly, we see more insurers acknowledging that climate change is an investment risk. Connected to that is the continued distinction between ESG risk factors and producing positive outcomes through impact and sustainable investments. We will also be seeing insurers incorporating impact as a lens to evaluate the non-financial impact of an investment. Then lastly, there is a trend towards increased tracking of non-financial investment KPIs and more public reporting.