How are investors in natural resources using big data and AI to more efficiently manage their investments?
Big data shines a light on what has previously been viewed as ambiguous information. When it comes to investing in natural resources – farmland, timberland, energy – sustainability is essential for assessing risk and preserving long-term value. Where does big data come in? In our due diligence for land purchases, for example, we combine data from satellite imagery to understand historical land use patterns, while matching it to government global positioning system data used to substantiate land claims. This is particularly important in regions where we must adhere to regulatory frameworks that promote zero deforestation and sustainable agriculture.
Technology plays a major role in informing our farmland investment and management approach. Our models consider the rising world population, changing dietary patterns of expanding middle-income classes in developing markets, as well as the reduction in arable land in the coming decades and how such factors will drive the supply-demand balance for food and fiber. We also analyze data that relates to climate change, because its manifestations – from droughts and floods, to wildfires and deforestation – represent a threat to sustainable agricultural production and enduring investor value. Data and technology are strengthening our sustainability practices across our global farmland assets, potentially increasing alpha and managing risk for investors.
Are managers making more of a conscious effort to reduce their carbon footprint and move toward more responsible and sustainable investments?
The realities of climate change and carbon-related impacts have further strengthened our resolve to keep sustainability at the forefront of our policies, strategies, and practices every day. Our parent company, TIAA, endorsed the Task Force on Climate-Related Financial Disclosure (TCFD) in December 2017 as it supports and appreciates the importance of climate-change-related risks and opportunities, as well as disclosure and transparency. Nuveen has a multi-disciplinary working group to explore ways to measure climate risk across asset classes, leveraging scenario analysis as supported by TCFD.
As the largest farmland manager in the world and a long-time responsible investor, we are very much focused on mitigating the impact of climate change on agriculture systems and our agriculture investments, while also mitigating the impact of agriculture on climate change. It needs to go both ways in order to have an impact. We are building and adopting standards for sustainable agriculture, which both improve resilience to a changing climate but also lessen our overall impact on GHG emissions. In August 2018 for example, we deepened our commitment to discourage deforestation – a significant contributor to global carbon emissions – by adopting a Zero Deforestation Policy for our Brazilian farmland investments. This prevents the depletion of forested areas and native vegetation on land we are managing, or intend to acquire, for our investors. We also invest in climate data that tells us about our risk exposure across different regions and crops, compared against varying climate scenarios. This helps us to create an educated and proportionate strategy to diversify risk and mitigate climate impact.
This mindset informs how we invest in other areas as well. Through our private equity impact strategy, we seek out companies with innovative technologies that improve resource efficiency and reduce carbon intensity in production processes and supply chains. In 2018 alone, these investments saved 1.8 million tons of CO2e.
Are you seeing more demand for ancillary services/infrastructure to overcome water scarcity and remedy infrastructure shortcomings? If so, what challenges will this bring?
Global water crises and shortages demand new solutions and better metrics to track performance and ensure responsible management. These extreme conditions can fallow acreage, depress crop yields, reduce annual returns, and endanger the long-term productivity of natural resource assets. Severe droughts in California, Australia, and Brazil in recent years have also affected crop yields.
Across our permanent crop properties (tree fruits, nuts, citrus, grapes), we implement efficient drip-line and micro-sprinkler irrigation systems. On farmland using flood or furrow irrigation, we aim to use recyclable polyethylene piping. When combined with other water-management techniques, these pipes can improve water-use efficiency by 25%. On Nuveen properties in the Southern US and Australia, techniques like precision land leveling are being introduced to improve drainage, control erosion, and reduce overall water use. The techniques we employ are designed to improve sustainability and efficiency. When used, they can cut overall water usage dramatically.
Invariably, an investment in natural resources – farmland and timberland in particular – leaves an investor exposed to the vagaries of Mother Nature. In a warming, more variable climate, ensuring the quality and quantity of water resources is perhaps the most important challenge. Implementing mitigation strategies requires investors and managers to have the requisite knowledge, and also financial capital to invest in the improvements and programs. There are also potential opportunities for governments, policymakers, and private investors to come together to address large-scale infrastructure solutions at a more elevated, regional, state, or even federal level.
A weaker-than-expected global growth outlook has created lower commodity prices. Where are you seeing the most attractive opportunities as a result?
As global growth has slowed, commodity prices have reflected lower current and forecast demand. The US-China trade war has been, and is projected to be, a drag on global GDP. However, it does present upside potential in the event of early-relaxation trade barriers for many commodities. With weaker global growth already incorporated into suppliers’ plans (lower rigs, reduced fracking production growth, etc.), the slowdown in supply will create dislocations in time and geography throughout supply chains, producing opportunities. If the slowdown in growth is harsher than expected, price action may support trend-following strategies.
This article is taken from the 2020 Preqin Global Natural Resoures Report. For more expert commentary on the natural resources industry, please visit preqin.com/gnrr
Nuveen, the investment management arm of TIAA, is one of the largest investment managers in the world with $1tn in assets under management. Managing a broad array of assets across diverse asset classes, geographies, and investment styles, we provide investors access to a wide range of liquid and illiquid alternative strategies.
We offer real asset strategies through our investment specialists. AGR Partners provides growth capital to leading mid-market agribusinesses and food companies. Westchester has more than 30 years of experience in acquiring, managing, and marketing agricultural real estate assets around the world, and is the largest manager of farmland assets globally. GreenWood Resources specializes in the acquisition and stewardship of forestry assets. Gresham Investment Management is recognized as one of the world’s leading investment managers focused exclusively on portfolios providing investors access to a diversified array of commodities.
 As of 30 September 2019
 Source: Pensions & Investments, 30 Sept 2019. Rankings based on institutional tax-exempt assets under management as of 30 Jun 2019 reported by each responding asset manager