Insurance Asset Risk Awards 2023 - North Americas

Climate investment initiative of the Year - Nuveen

Climate investing has become something of a thorny issue for US investors in recent times. But Nuveen, the investment manager of TIAA, and Nuveen Green Capital (NGC), an affiliate focused on sustainable commercial real estate financing solutions, launched a fund to give insurers access to a diversified portfolio of energy efficient, climate resilient, water conservation and renewable energy projects, which proved a hit this year.

Nuveen formed its CPACE Lending Fund with the aim of aggregating the financing of commercial property-assessed clean energy (C-PACE) projects for the specific requirements of insurance investors, providing a capital efficient opportunity to access investment-grade clean energy assets via a rated note structure.

C-PACE is a relatively new asset class, but one that is intrinsically a good fit for life insurance companies in particular, offering relatively high-quality investment grade loans with a long duration and a fixed rate coupon. The challenge was finding a way to aggregate the multiple C-PACE loans into a structure that could be both scaled and, importantly, made capital-efficient for insurance companies.

After months of brainstorming, Nuveen and NGC were able to take an innovative approach and utilise a rated note structure to accomplish both the capital efficiency and scalability conundrums.

For US life insurers, for example, the weighted average RBC charge on the rated note structure may be 5% or less, compared to a potential 30% RBC charge as an LP in a private fund.

The structure can also be operationally efficient, as the rated note structure allows for the vast majority of the insurer's C-PACE holdings to be aggregated under one bond CUSIP in their Schedule D portfolio, versus holding many individually-rated and relatively small size C-PACE loans on the balance sheet.

Six insurers came together to form the initial group of investors, allocating $525m to the fund to finance energy efficiency and sustainability related CRE projects.

This may only be the beginning of what the industry could develop over coming years and shows investing and working to a more sustainable future are not exclusive.