Does TIAA-CREF hold shares of companies that have ties to the government of Sudan?
Yes. TIAA-CREF owns shares in 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). As part of our goal of providing lifetime income for the individuals who entrust their savings to us, our asset managers seek to hold shares of companies that can offer the potential for long-term value at acceptable risk.
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 of engagement to encourage 22 companies in our portfolios who have ties to the Sudanese government to sever those ties or take humanitarian steps. To date, nine of these companies have committed to end their operations in Sudan or committed to humanitarian initiatives in the region and, thus, no longer appear on our engagement list.
We actively continue to seek dialogue with companies that have yet to take action. Our efforts include contacting companies directly, working for global improvements in corporate governance, and coordinating with other investors.
What are some of the companies whose behavior TIAA-CREF is seeking to influence?
They include multinational companies based in Europe and Asia, including Lundin Petroleum, Oil & Natural Gas Company, PetroChina, PETRONAS, and Sinopec.1 Together these companies represent holdings of about $33 million, or less than one percent of the combined $398 billion in assets TIAA-CREF manages (as of 9/30/08).
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?
Many TIAA-CREF funds have no exposure to Sudan, including the CREF Social Choice Account and our Social Choice Equity mutual fund. The CREF Social Choice Account is the largest comprehensively screened investment vehicle for individual investors in the United States, with $8.0 billion in assets (as of 9/30/08).2 The 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.
Social screens for investments in the Social Choice Account include the Global Sustainability Index compiled by KLD, an independent social investing research firm. More information about the Social Choice Account and its screens is available online.
In addition, many of TIAA-CREF's funds and accounts, including those investing in only domestic companies, are free of exposure to Sudan.
What does engagement entail?
Engagement 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. As part of this process, we also advise some companies that we will explore escalated tactics such as filing shareholder resolutions if they remain unresponsive.
How effective is engagement?
Constructive engagement over the long term is, in the view of TIAA-CREF, more likely than divestment to bring about change in companies' practices, whether those companies reside in the U.S. or abroad. Our Corporate Governance team has significant experience in engaging companies and assessing their responsiveness to TIAA-CREF's concerns. While our work continues, we have seen evidence of progress:
As these examples suggest, our engagement sometimes occurs in a context of quiet diplomacy, which in TIAA-CREF's experience is more likely to spur companies to act than public protestations. While some dialogues bear fruit quickly, others bring results over a longer time frame. As long-term investors, we believe that this is consistent with our fiduciary duty to our participants.
Why is TIAA-CREF choosing to engage with Asian companies involved in Sudan, rather than divesting?
Our work with experts on social and environmental issues in Asia suggests that engaging in dialogue with companies around the business risk of their involvement in Sudan and best practices on addressing human rights has the most potential to change behavior in these companies.
We are working to introduce Asian companies, (most frequently Chinese) and Chinese governmental entities to the value of corporate governance 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.
As a general matter, TIAA-CREF's experience is that engaging with companies is more likely to bring about change in the practices of companies operating in Sudan. 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?
As described in TIAA-CREF's Policy Statement on Corporate Governance our strategy is to help improve the behavior of companies by engaging privately when we perceive shortcomings in their approach to social issues.
Engagement preserves our voice among a company's ownership and provides the opportunity to speak out about its actions. Divestment, or the selling of shares for non-financial reasons, forecloses further engagement and, in our view, is tantamount to abandoning the issue.
Engagement is a multi-step process. TIAA-CREF believes that we should explore the ways in which to influence the companies' behavior and thereby help bring about positive social change.
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. 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.
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," CREF Social Choice 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.
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.
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