Does TIAA-CREF hold shares of companies that have ties to the government of Sudan?
TIAA-CREF owns shares in some multinational companies that have appeared on lists of firms doing business in Sudan. Taken together these holdings comprise less than one percent of the combined $398 billion in assets TIAA-CREF manages (as of 9/30/08).1
I am concerned that my savings are in companies that are complicit in the humanitarian tragedy in Darfur. What is TIAA-CREF doing about the problem?
Over the past two years, TIAA-CREF has continued a campaign to encourage companies in our portfolios that have ties to the Sudanese government to sever those ties or take humanitarian steps. As described below, some of these companies already have committed to end their operations in Sudan or undertake humanitarian initiatives in the region.
What are some of the companies whose behavior TIAA-CREF is seeking to influence?
They include such European and Asian multinational companies as Lundin Petroleum, Oil & Natural Gas Company, PetroChina, PETRONAS, and Sinopec. As noted, these companies represent a very small percentage of assets TIAA-CREF manages (as of 9/30/08), and typically show up in international funds and accounts that have a mandate to track emerging market indices. 1
Other companies TIAA-CREF has engaged on the issue, including ABB Ltd., Baker Hughes Inc., Marathon Oil Company, Rolls-Royce plc and Siemens AG, have either discontinued or committed to discontinue their operations in Sudan or no longer have operations in the country.
What is your advice to TIAA-CREF participants who do not want their retirement funds invested in those companies?
Most TIAA-CREF funds have no exposure to Sudan, including the CREF Social Choice Account, 2 the largest comprehensively screened investment vehicle for individual investors in the United States, and our Social Choice Equity mutual fund.
In addition, many of TIAA-CREF's funds and accounts, including those investing in only domestic companies, are free of exposure to Sudan.
The CREF Social Choice Account includes both domestic and international companies who have passed environmental, social and governance screens that factor a company's ties to Sudan into its overall performance.
What does engagement entail?
Engagement is a continuing process that takes advantage of TIAA-CREF's status as a shareholder to raise companies' awareness of the long-term business and reputation risks of their ties to Sudan. We pursue dialogue with companies to encourage them to take steps to promote social responsibility and adopt sound governing practices, both of which should contribute to long-term financial performance.
With such small holdings in the target companies, how much influence can TIAA-CREF expect to have?
As described below, we have seen evidence that engagement can effect change regardless of the size of our holdings, and is, over the long term, more likely than divestment to bring about change in companies' practices, whether those companies reside in the U.S. or abroad. For example:
As the above items suggest, signs of progress exist, and engagement can bear fruit. As the examples above suggest, our engagement sometimes occurs in a context of quiet diplomacy, which in TIAA-CREF's experience is more likely than public protestations to spur companies to act.
Why is TIAA-CREF choosing to engage with companies involved in Sudan rather than divesting?
Our work on social and environmental issues in Asia suggests that engaging in dialogue with companies around the business risk of their involvement in Sudan and steps they might take to address human rights has greater potential to change behavior in these companies.
For example, we are working to educate Chinese companies and governmental entities about the value of practices that promote long-term shareholder value. Our discussions with Chinese officials and with global organizations such as the Association for Social and Responsible Investment in Asia and the Asian Corporate Governance Association highlight a cultural lack of awareness of the potentially adverse business consequences to the companies of their failure to accept responsibility for the humanitarian consequences of their behavior.
There is no evidence that selling shares in target companies has any impact on their behavior, other than to preclude further engagement by the very shareholders who have the potential to hold those companies accountable for the consequences of their actions.
In the 1980s, TIAA-CREF pursued a similar approach of engagement with companies with ties to the pro-apartheid government of South Africa. 3 At the time, TIAA-CREF pursued a strategy of engagement, concurrent with offering clients a socially screened investment account that offered investors the opportunity to align their portfolios with their social concerns.
We acknowledge and share the goal of those who want to end the tragedy in Sudan. By pursuing a policy of corporate engagement, we seek to produce positive social change and results for our investors over the long term.
Will you consider selling shares of companies that do not take steps to sever their problem ties?
We do not believe that divestment offers TIAA-CREF an optimal strategy for changing the policies and practices of portfolio companies, or for producing long-term value for the individuals who entrust their savings to our organization.
We based this view on several considerations: divestment would eliminate our standing and rights as a shareholder and foreclose further engagement; divestment would be likely to have negligible impact on portfolio companies or the market; (iii) divestment could result in increased costs and short-term losses; and (iv) divestment could compromise our investment strategies and negatively affect our performance. In addition, divestment is not an option in segments of our portfolio that track market indices, as we are required to invest in all companies included in an index. 4
Engagement preserves our voice among a company's ownership and provides the opportunity to speak out about its actions.
Will you pledge to not add to your holdings in these companies?
While our ownership of shares in the target companies has fluctuated over time and may continue to do so, they comprise a very small percentage of our overall investment portfolios and tend to appear in segments of our portfolio that track market indices, as we are required to invest in all companies included in an index. As noted, individuals can avoid such companies by investing in the CREF Social Choice Account or Social Choice Equity Mutual Fund.
What is TIAA-CREF's reaction to divestment by other institutions, including state pension funds and several prominent colleges and universities?
We recognize that different investors can and will pursue varied strategies and actions in pursuit of our common objectives. As a spokesperson for Amnesty International USA noted last year, "It takes all kinds of activism from investors to really influence companies. The divestment movement is strengthened by the engagement movement." 5
We make an effort to balance the policies and sentiments of the higher education institutions we serve with our own charter, our fiduciary responsibilities and the evolving policies and laws of the respective states. While we take seriously the views of other institutions, TIAA-CREF has an obligation to seek maximum returns (within each fund's risk profile) on the funds that our participants entrust us to manage.
Investments in mutual funds and variable annuities involve market risk. Because their social screens exclude some investments, the Social Choice Account and Social Choice Equity Fund may not be able to take advantage of the same opportunities or market trends as accounts that do not use such criteria.
Variable annuity contracts are designed for retirement or other long-term goals, and offer a variety of income options, including lifetime income. Payments from the variable annuity accounts and mutual funds are not guaranteed and will rise or fall based on investment performance. Mutual funds do not offer the range of income options available through annuities.
TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products..
You should consider the investment objectives, risks, charges and expenses carefully before investing. Please call 1 877 518-9161, or go to www.tiaa-cref.org for a current prospectus that contains this and other information. Please read the prospectus carefully before investing.
Annuity products issued by TIAA (Teachers Insurance and Annuity Association of America), New York, NY.
© 2009 Teachers Insurance and Annuity Association of America — College Retirement Equities Fund (TIAA-CREF), New York, NY 1001
1 The holdings information provided above is as of the date indicated, and may not reflect the current holdings of the investment funds and account vehicles.
2 Source: Social Investment Forum, 2007 Report on Socially Responsible Investing Trends in the United States. Based on assets under management among mutual funds and variable annuities that screen across multiple environmental, social and governance criteria (versus those that apply only product-specific screens such as alcohol and tobacco; among all mutual funds and variable annuity accounts categorized as "socially and environmentally screened," the CREF Social Choice Account was the third largest).
3 See "Loosing the Bonds: The United States and South Africa in the Apartheid Years," Robert K. Massie (1997) for discussion of how investors and others adopted a multi-dimensional approach to countering apartheid that included a mix of tactics. "South Africa's economy faltered not because of any single action by a company or company, but because of the combined repercussions on an economy which, even at best, had serious structural flaws." Ibid. at 623.
4 We encourage participants to read TIAA-CREF’s Policy Statement on Corporate Governance, which is available at http://www.tiaa-cref.org/about/governance/index.html.
5 See “Quelling Activists’ Revolt on Human Rights,” Compliance Week, April 29, 2008.
© 2009 and prior years, Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), New York, NY 10017
