How the EU and US can help each define good investing

Amy O’Brien, global head of responsible investing at Nuveen, an American asset manager. Photo: Nuveen

Amy O’Brien, global head of responsible investing at Nuveen, an American asset manager. Photo: Nuveen

Amy O’Brien of Nuveen talked to Delano about the differences between the EU and US when it comes to environmental, social and governance investing, why she’d like more transatlantic harmonisation, and what’s missing from the ESG conversation.

O’Brien participated in a webinar, “Transatlantic Cooperation in Sustainable Finance”, organised by Luxembourg’s US embassy in October. Other speakers included Pierre GramegnaPierre Gramegna, Luxembourg’s finance minister (DP), Julie BeckerJulie Becker, CEO of the Luxembourg Stock Exchange, deputy assistant secretaries at the US state and treasury departments, as well as Nicole Bintner, Luxembourg’s ambassador to Washington.

Based in New York City, O’Brien is global head of responsible investing at Nuveen, an asset manager that is part of the financial group TIAA. TIAA is one of America’s largest pension fund firms, although it provides other investment and financial services. It traditionally has served the US academic and not-for-profit sectors, but now has a wider client base. The firm said it has roughly 5m clients in more than 50 countries, with $1.3trn in assets under management, as of 31 March 2021. O’Brien said during an interview that about a third of those assets are outside the US, including in the EU and UK.

She spoke with Delano following the webinar, in early November.

Aaron Grunwald: How did the webcast come about?

Amy O’Brien: The webcast came about as a partnership across several areas within our own company. [We] do a lot of our climate work through partnerships with our own policy team. Oftentimes ESG topics--they’re investment topics, clearly, that’s why we’re focused on them--but increasingly, there’s a significant policy dimension. So, for example, in the United States, we’re often working to advocate at the [Securities and Exchange Commission], so that companies are actually disclosing the ESG information that we feel is relevant to analyse. And we are still at a point where ESG disclosure is not mandated for the most part in the United States. There’s some disclosure related to certain sectors that are associated with environmental laws that were passed decades ago. But for the most part, you don’t have common disclosure.

As a global investor, with companies based around the world, and I have investors based around the world, we have been actively participating in the global policy dialogue when it comes to climate, because this is not an issue that’s just within our borders here in the States. [As] we’re finding our business, our portfolio and our client base becoming increasingly global, we, as a financial service company, are often in the middle of talking to the different stakeholders, so that all this information is talking to each other in the right way, if that makes sense. But we’re noticing a lot of different approaches around the world…

We just feel like there needs to be more transatlantic dialogue right around the approaches being taken and we could learn a lot from each other and sort of set the system right going forward from a real practical implementation standpoint.

What exactly would you like to get out of this dialogue? Would you like to see regulatory alignment? Is it just sharing best practices?

Well, alignment is key. We need to align initially on disclosure. I mean, we need a company level disclosure…

If we are having decisions around taxonomy and reporting requirements of asset managers, but then that doesn’t link up to what we’re asking listed companies to report, there’s a real misfit; there’s a problem there, right. So I’d say aligning around disclosure, aligning around frameworks…

And the good news is that many, many leadership companies have been road testing these things for years, even in the absence of a regulatory regime, because they want to put out the right information, they find this information useful for their own decision making purposes.

You mentioned that the EU and US take different approaches to ESG and sustainable finance. Can you give an example of what’s different?

So the key difference right now is, in the EU the initiatives are leading with putting the first level of action on asset managers versus companies. In the US, the SEC is doing the opposite and looking at corporate disclosure…

In both regulatory regimes, US and the EU, there’s also parallel work happening with product classifications. So [the Sustainable Finance Disclosure Regulation] is happening right now in the EU, where that’s not quite lining up with what’s happening on disclosure. There’s a vagueness there. At the same time, in the US, there’s a big push to get more transparency around how funds are named. So there’s another level of product classification work that also has to be sorted out.

These are things that in the SFDR we’re spending a lot of time on, because even though we’re a US-based asset manager, we have strategies and funds that we are selling to European investors. So we’re having to spend [time] to classify products. I mean, we want to be credible…

I think that what’s common to both regions is there’s a real push for credibility. There’s a concern around greenwashing. You’ve heard that term, of course, many times. So I think the intention is [to] have these kinds of regulations that will help the end investor understand what they’re buying. But we’re looking at different product naming and classification conventions between different jurisdictions, which makes it very challenging for a global asset manager to be consistent.

Outside of environmental criteria--so, social and governance standards--are there other transatlantic differences that stand out?

On the US side, I think we are a lot more comfortable, or have more experience, with disclosing our diversity data. So in that case, we’ve had a regulatory regime in the US which required all companies above a certain size to issue their EEO-1 forms [editor’s note: disclosure required since the 1960s by the Equal Employment Opportunity Commission for all employers with 100 or more employees] every year. And so we’re very used to that, where it seems like some other countries are not as comfortable. Take gender disclosure, the issues related to ethnicity. Different countries are working through what’s possible.

I think how to use that data has been an interesting conversation. And really on that topic, it’s more about how we, as a company, are acting, than what are we seeing in our portfolio; like, how do we want to express commitments and investment beliefs around diversity, equity and inclusion with our portfolio companies. This is an issue that hits really close to home. And so what I saw on [another recent] webinar, the questions coming in were really more around, how do you move beyond just getting better representation numbers? What are the actual practices within firms on inclusion, like policies and programme? It seems to be a little bit more focused on the how we act versus how we invest, where the climate conversation right now is more on the how we invest versus how we act. For climate, the big footprint that we have, as a financial service company, is in our portfolio. So we could do recycling and cutting back on paper and all that, but in this case, the DEI one, that’s really putting the lens more on ourselves, right? There’ll be more dialogue about that in the coming year.

If you had a magic wand, what would you wish for?

I think we’ve made a lot of progress as an industry on the ESG metrics, absolutely. Would I like to see them more consistently applied across jurisdictions and reporting requirements? For sure.

One thing that we need to work more on are the metrics around what are the outcomes that we’re producing in the real world. When you look at the way a company is rated by MSCI or Sustainalytics, there’s a questionnaire. Those companies are asked right now [about their] frameworks, how they’re managing the risks and opportunities associated with ESG topics, their policies. But I’ve got to think that... there’s different motivations for why investors want to engage. I think those individual investors, who are pensioners or beneficiaries, they’re increasingly interested in making sure there’s real world impacts that come out. So you could get all the diversity disclosure data, you can get a better handle on inclusion practices. But, you know, how many quality jobs did that company produce?

[Many investors want to know] ‘ESG to what end’. So far, we’ve had net zero, right? There really hasn’t been ‘ESG to what end’. It’s just, ‘oh, we’re better investors, we’re having these positive benefits’. But I feel like more of that is needed. We certainly don’t have any kind of ‘net zero carbon by 2050 goals’ for any social topics. So [the magic wand would answer] ‘what does good look like?’ We’ve got the Sustainable Development Goals, which certainly have been important to create those outcome focus areas, but again, those categories need to be translated into something that can be measured at a company, and then rolled up at the portfolio level.