Determinedly activist, TIAA-CREF, the $426 billion pension fund for academic, medical and cultural institutions, is making a big push this year into green causes.
“We now have a greater focus on environmental and also social issues,” says Hye-Won Choi, until recently the fund’s head of corporate governance. “We view these issues as economic and performance issues and not just as moral or ethical ones.”
In January, TIAA-CREF launched a campaign targeting ten market leaders in the steel, airline and real estate industries that emit large quantities of greenhouse gases. The fund’s ultimate goal: to improve all companies’ reporting on how they address climate change and view the impact of environmental regulations. One query in TIAA-CREF’s 12-point questionnaire asks: “Have you analyzed all the potential risks, and opportunities, of global warming — including regulatory changes, physical risks and the impact on your market?”
What impact might this latest drive have?
Megan Brown, a London-based climate change analyst in the socially responsible investing (SRI) research division at Citigroup, reports that campaigns like TIAA-CREF’s have achieved massive improvements in disclosure but little in terms of political change or emissions reduction. “There have been very few campaigns that have directly changed company strategies — regulation has a greater impact,” she says.
Still, some say SRI investing may become the norm because of an evolving legal perspective. Michael Jantzi, the Toronto-based CEO of Sustainalytics, an SRI consulting and research firm, argues, “In today’s world, if you aren’t looking at environmental and social issues as part of the equation, you may be transgressing your fiduciary duty as a trustee.” He points to the United Nations’ Principles for Responsible Investment, in which the signatories, representing more than $20 trillion in assets, stated that environmental, social and corporate governance standards were “consistent with fiduciary responsibilities.”
“We continue to believe,” says Choi, “that engagement is the best way to influence the policy of companies.”
In June, TIAA-CREF underscored its stepped-up commitment to activism when it named Jonathan Feigelson, the fund’s general counsel and a senior vice president, as its formal head of corporate governance. Choi, also a senior vice president, now reports to Feigelson and will continue to be actively involved in developing and executing the fund’s corporate governance strategies.
Like other funds with an activist bent, TIAA-CREF now faces a major quandary: how to react, if at all, to BP’s Gulf of Mexico oil spill. At last report, the fund held approximately 29.5 million shares of the oil company.
“We’re watching the situation very closely as it continues to unfold, and will take it from there,” says Feigelson. “With most of our portfolio companies, including the oil companies, we expect that through our engagement we will be able to partner with them to ensure that they are fully disclosing what risks they are taking and what efforts they are taking to mitigate those risks, so that shareholders have a fully informed basis to determine whether they want to invest or not.”
As TIAA-CREF’s shareholders have discovered, to do good can be to do well. The $841 million TIAA-CREF Social Choice Equity fund — one of the biggest U.S. socially screened funds (and not a holder of BP) — has had stellar results lately. Its trailing one-year return through May was an impressive 26.17 percent, outpacing the Standard & Poor’s 500 index by more than 5 percentage points, according to Morningstar. And the fund’s three- and five-year annualized returns through May were –6.90 percent and 1.72 percent, beating the S&P 500 by 1.79 and 1.41 points, respectively.
