Measuring and maximising the true impact of investing

Wealth Management and Private Banking

17 March 2022

DiversificationEnvironmentalESGGlobal economyGreen InvestingMeeting of MindsSocial Impact InvestingsustainableWealth managementWealth Management and Private BankingWealth Management and Private Banking

Expert: Jessica Zarzyycki, Nuveen, Facilitator: Paula Pizzala


  1. There is 2.3 trillion dollars in outstanding green social and sustainable bonds. We are seeing more increase issuances and diversification which allows for us to increase our impact holdings and securities
  2. Fund managers need to have a transparent approach that helps client understand their sustainability objectives and how the fund manages and measures impact
  3. Taxonomy as a measurement between different jurisdictions is still not clear cut with so many developing their own
  4. We believe clients should not sacrifice returns when investing for positive environmental and social outcomes.
  5. Wealth managers, by and large, see Impact Investing as a non-core service, however as part of understanding client values it is becoming core to keeping and attracting clients whilst adding complexity, because every client has different value judgements


Green, social and sustainable bonds:
The Green, Social and Sustainable (GSS) Bond market is still a relatively young with only a 15-year history of labelled bonds and only 3% of the overall fixed income market.

In 2021 the GSS market reached 2.3T with expectation issuance for 2022 of 1.5T.

The development agency and supranationals like the World Bank and European Investment Bank were the first to issue labelled green bonds followed by Utility sector. We have seen further diversification across credit quality, sectors, and use of proceeds.

Our approach created in 2007 focuses on direct use of proceeds and measureable outcome which aligns with the ICMA green, social and sustainable bond principles. However, we our proprietary framework tends to have a higher standard.

In the impact space, sustainability bonds, where the use of proceeds are mix of green and social, is growing. The green and social reinforce each other. For example, the Women’s Livelihood Bond series focuses on providing financing to women; but also includes projects related to sustainable agriculture or sustainable garment making.

Sustainably linked bonds (SLB), still a relatively small percentage of the market, have gain traction. We do not consider SLBs impact securities. Sustainably-linked bonds move away from the Use of Proceeds and key performance indicator are at the issuer level. An issuer setting a target is a positive step; however, you could be investing in something that doesn’t meet its targets with a de minimis penalty of 25bps coupon step-up.  SLBs can sound great with commitments like 35% reductions in greenhouse gasses by 2030 but when you look at the details, we have seen issuers who have already hit the target or close to the target at issuance date, call date before the target date, assumptions that can be changed ahead of the step-up date, or focus on scope 1 and 2 emissions when 95% of their emissions are scope 3. If a company’s target is truly ambitious, the company likely has capital projects to support their goal and can issue a green or social bond with direct use of proceeds.

Educating and defining:
Wealth managers actively want to make impactful investments that are dealing with climate, bio-diversity loss, equality, and income gap.

There are many different views on green or sustainable investing.  Our process and philosophy is transparent, repeatable, and measurable which are important standards to adhere to. While some may not agree with all of our holdings, they do agree with our investment philosophy which is based on these hallmark principles.

When we think about green, social and sustainable bonds all of these have to be Use of Proceeds based – the capital we’re investing needs to be directly linked to a project. Our two environmental themes are renewable energy and natural resources and our two social themes Affordable Housing and Community & Economic development

Engagement is a critical step in our process to verify the security meets our impact standards before entering the portfolio. We require that all of our impact bonds provide annual impact measurement. The measurability allows ensure the issuer invested proceeds into green and social projects and allows us to provide our clients the impact they are making by investing in our funds.

Renewable Energy projects include not only wind and solar projects but also transmission and distribution lines connecting renewable energy onto the grid so more houses are able to connect to renewables.

Natural resources include conservation and bio diversity, energy-efficient buildings. Projects we have invested in include Seychelles Blue Bond and LEED and BREAM certified buildings.

Affordable Housing includes project around the world – i.e.  we have invested in affordable housing units in India or units that focus on military veterans.

Community and Economic Development include projects related to gender lens investing like the women’s livelihood bond.

Sovereigns have a very important role in the transition to green and social sustainability. While the initial outlays for Sovereigns maybe more challenging due to coordination across 20 or 30 ministries the upfront coordination and increased transparency should allow for the process to be replicated more efficiently in the future. The sovereign budget should be able to ringfence projects focused on social and environment outcomes, such as clean transportation, renewable energy projects, food security programs and affordable housing that will enable a sovereign to be a repeat issuer in the impact bond market.

Over the last 10 years we developed our ‘do no harm’ list for projects. For example, we focus on run of the river hydro projects over large-scale hydro projects. Large scale hydro projects can displace indigenous people or change the environment of that particular area due to damming or other activities.

Taxonomy as a measurement between different jurisdictions are still not clear cut with so many countries and regions developing their own taxonomy. For example, EU’s taxonomy – creating standardisation across different industries is a step in the right direction. However there a concern when you become very strict in your guidelines you can risk stifling research efforts and potential climate solutions that urgently needed. EU Taxonomy remains fluid and a moving target.

The EU Taxonomy debate is also political. It is re-shaping economies and how each country develops a plan for climate transition.

The geopolitical situation in Ukraine and higher oil prices does not change the medium-term move towards renewable energy. Countries want to become energy independent and renewable energy is the best way to achieve that goal.

Finding value in sustainable:
Financial performance is critical for the long-term development and success of sustainable investing. In our traditional benchmark funds like Global core impact or US Core Impact we seek to maximize impact, but also utilize a best-in-class ESG approach which focuses on the best-in-class issuers by industry. Clients should not sacrifice performance to invest sustainably.

ESG leadership is a, holistic approach to the industry that focuses on the best run companies and or countries. Clients’ thinking has evolved over the last few years with the growing realisation that screening certain sectors like energy will not help meet climate goals. It also allows us to engage with companies that are “laggards”, not eligible for investment and work with them to improve their standards and set goals. In addition, impact securities can support a laggard’s transition to a greener standard.

ESG leadership helps to mitigate the risks to portfolios by directing capital towards companies that are the best managed and stewards of environmental and social outcomes. These companies tend to outperform in a downturn.

We believe over time our impact percentage will continue move towards 100 percent impact. For a global aggregate mandate, we need to see more green, social, and/or sustainable sovereign issuance to move towards 100% impact. Currently, we are using ESG sovereign leaders to ensure the ability to access specific points curve and target duration, but over time we will see more sovereign impact issuance.

Removing ESG leaders depends on how fast there is development within the different markets. With further diversification, we are running between 40/45 percent with impact the rest is with ESG leaders – but with Europe’s strong energy independent capital which will help facilitate opportunities for us to invest and make an impact.

Key Takeaways:

  • Use of Proceeds bonds is one of the best ways to support a company or countries green transition
  • Net Zero targets are a long way away for 2050 so the green bond market allows investment to support these targets with yearly checkpoints rather than the target being 2050
  • Don’t sacrifice financial performance as this will only hurt the development in green social and sustainable in the long run and clients will likely always revert back to financial performance
  • ESG is used synonymously in the industry for everything in the industry but it should be used for thinking about the company holistically – factoring in how they are dealing with climate risks, health and safety, diversity – so ESG leaders in sectors should be helping to mitigate risk within the portfolios – encompassing all the factors and driving better outcomes in general
  • There is a real difference between Impact and ESG - we need to understand the difference between them and distinguish between them as well as avoid the danger of mis-selling if we’re not clear on what we are talking about