For sovereigns, ESG information is most often included as a qualitative part of the research process. Analysts leverage World Bank, World Economic Forum and NGO resources to provide insights into how a country is managing and performing on ESG issues such as: human capital development, access to basic services or political governance.  In 2019, we began developing an internal framework to assess ESG performance of sovereigns for assignment of proprietary ratings in 2020.

For municipals, we developed a data-driven proprietary methodology to assess the ESG performance of municipals. Our proprietary models draw on publicly available datasets to measure municipal performance on ESG outcomes across eight municipal sectors, using material factors relevant to each municipal sector. For example, hospitals are assessed on ESG outcomes such as quality and affordability of care, whereas water utilities are assessed on water quality and water stress risk.   The automated approach allowed us to assess the ESG performance of close to 20,000 municipal issuers (over 50% of Nuveen’s tax-exempt municipal holdings and over 66% of the Bloomberg Barclays Municipal Bond Index). ESG scores and data are fully integrated with investment research and trading platforms, allowing for access by the Nuveen municipal investment team.

Taxable fixed income analysts employ a fundamental bottom-up approach to their credit research process. As part of this process, analysts have always implicitly considered material ESG information as a qualitative input to their research. In 2019, Nuveen’s taxable fixed Income team explicitly captured ESG conviction through the assignment of proprietary ESG ratings to over 1200 corporate issuers, of which approximately 19% were financial corporates. To assign the ratings, analysts leveraged Nuveen’s proprietary RI Data Platform, including Nuveen’s materiality map, as well as issuer disclosure. Material issues considered to assign corporate (financial) ratings included: management of climate change risk, data privacy and security, human capital management and corporate governance.  Proprietary ESG ratings are embedded in investment research and trading platforms.     

For investment specialists investing in private financial services companies, credit teams use a proprietary ESG framework that highlights material factors for this sector. Where information is not available in the public domain, investment teams may engage with the issuer or third parties (underwriter, sponsor or consultant) to glean additional information. 

Similar to corporate (financial) ESG analysis, taxable fixed income analysts employ a fundamental bottoms up approach to their credit research process that has always implicitly considered material ESG information as a qualitative input to their research. In 2019, Nuveen’s taxable fixed Income team assigned proprietary ESG ratings to over 1200 corporate issuers, of which approximately 81% were non-financial corporates. Like with assessing corporate financial, analysts use Nuveen’s RIDP to assess material issues for non-financial sectors. Material issues considered to assign corporate (non-financial) ratings differed by sector. For example, utilities analysts considered climate change and carbon emissions, natural resources, health and safety and corporate governance whereas for media analysts evaluated energy use, data privacy and security, human capital development and business ethics. Proprietary ESG ratings are embedded in investment research and trading platforms.    

For investment specialists investing in private non-financial companies, credit teams use a proprietary ESG framework that highlights material factors by sector.  Where information is not available in the public domain, investment teams may engage with the issuer or third parties (underwriter, sponsor or consultant) to glean additional information.

For real estate debt, real estate debt: ESG is integrated into the investment process through the selection of target markets taking into account anticipated demographic shifts, potential social disruptors in a city or region, climate risks and any other high risk factors that may result in decreased value of or demand for real estate assets in the city or region. 

ESG information is often included as a qualitative part of the research process. Structured analysts focus primarily on the credit quality of the underlying asset pool, rather than that of the issuer or sponsor. Analysts also consider governance factors at the sponsor level. In 2019, the Responsible Investing team in collaboration with the Nuveen’s taxable fixed Income team began developing ESG frameworks across multiple securitized sectors for assignment of proprietary ratings in 2020. 

For sovereigns, analysts systematically consider economic and political stability, social demographics and financial governance issues most material to credit quality.

For municipals, analysts consider similar issues to sovereign issuers, but may also take a wider view incorporating issues such as natural resource scarcity and human capital factors into the research process.

In addition to material ESG factors, SSA analysts may also consider the positive environmental and/or social impacts of the underlying use of proceeds from project bonds issued by SSA issuers. 

For corporate financial issuers analysts may consider material issues such as management of climate change risk, data privacy and security, human capital management and corporate governance.  

For corporate non-financial issuers, analysts consider different ESG issues depending on sector. For example: for utilities analysts considered climate change and carbon emissions, natural resources, health and safety and corporate governance whereas for media analysts evaluated energy use, data privacy and security, human capital development and business ethics.     

ESG analysis focuses primarily on the underlying asset pool rather than the issuer or sponsor. However, analysts may consider business ethics or governance practices at the sponsor level where material.