Insurance insights: Impact investing in public fixed income

Stephen M. Liberatore, CFA , Head of ESG/Impact, Global Fixed Income at Nuveen, a TIAA company , recently sat down with Stewart Foley of InsuranceAUM.com for a podcast discussion on myth busting and impact investing within the public fixed income universe.

This episode is such a great listen. Steve and Stew chat about the evolution of the impact bond market, a sustainable bond investment example in a Sonoma-based mobile home park—and somehow even Joe DiMaggio enters the discussion toward the end!

Here are a few of the myths that Steve specifically addresses:

Myth: Impact investing can only be pursued through private investment strategies.

Historically, investors only thought about private equity and venture capital when thinking about impact investing. Now the market has grown to recognize that impact can be made across a wide range of asset classes. The nature of the public fixed income space lends itself nicely to impact by allowing investors the ability to structure a transaction with a clear plan for the use of proceeds, and in turn providing them with relevant and insightful impact data. And investors are catching on. A recent GIIN study notes that public debt was the fastest-growing asset class for impact investments.

Myth: To be a responsible investor, you must sacrifice returns.

Again, this myth may be based on historical approaches when investors were typically viewing responsible investing as a form of risk mitigation and excluding entire sectors of the market. Investors today increasingly view impact as a growing and evolving opportunity set. If you are approaching impact investing correctly, you are applying it combined with ESG factors to the portfolio construction process and therefore seeking positive financial opportunities that are additive to overall performance.

Myth: There are green, blue, and orange bonds.

Just kidding… this one is actually true, although the definitions are subjective. For example, due diligence is needed on a security-level basis to determine whether a bond fits within your definition of “green.” At Nuveen, we define green bonds as terrestrial-based projects with a direct, measurable, and positive environmental outcome. Blue bonds are similar but the proceeds are used on marine-based projects, and similarly orange bonds on social outcomes.

If you’d like to learn more, check out the full episode which runs 30-minutes long and can be found here.

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