Active management provides an additional layer of ESG screening

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The start of the Russian-Ukrainian war sounded alarm bells for many investors who saw ESG as a solution that would work in all markets.

“I think Russia serves a good purpose to remind everyone that this is still a market where I think using active management is key,” Steve Liberatore, Senior Portfolio Manager at Nuveen, a TIAA company, said May 17 at the Morningstar Investment Conference.

Liberatore said, speaking from the perspective of a fixed income manager, that Russia was actually part of his eligible investment universe until February.

“We go through a pretty rigorous process of creating an eligible universe which is basically where we start, and it’s a good reminder that…a rating on an issuer from an ESG perspective is the opinion from someone – and that’s it,” Liberatore said.

“I’ve never owned Russian debt, and I don’t know how anyone could. When you just look back from a [ESG] perspective, I don’t know how an authoritarian regime tied entirely to the fossil fuel extraction industry, without any concept of transition, could be considered an ESG leader,” Liberatore added.

As an active manager, Liberatore said he has been able to work with companies that show they are trying to move away from the fossil fuel industry.

“A rating agency’s view is just one person’s opinion. You can use it, and it contains valuable information…because these analysts spend a lot more time with issuers than we will – even though we try to engage with all of our issuers – so it’s important to take factor that into your analysis,” Liberatore said. “But you still need to bring your expertise and know that when you’re picking stocks or building a portfolio, you’re offering what your investor is looking for, not just blindly staring at a quote someone else provides. ”

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