Through a series of integrated strategies, TIAA-CREF continues to promote long-term value for participants through sound governance policies and corporate social responsibility in areas ranging from executive compensation and the environment to human rights in Sudan. The organization will report on its actions over the past year at today's Annual Meeting of College Retirement Equities Fund (CREF) participants in Denver at 9:30 a.m. local time.
As a long-term investor, TIAA-CREF believes that good governance and responsible corporate behavior contribute significantly to the long-term performance of public companies. By promoting these practices, TIAA-CREF helps to contributes to the long-term interests of individuals who entrust their retirement savings to the firm.
TIAA-CREF's activities include monitoring and engaging with portfolio companies to encourage adoption of best practices, social screening, and community and proactive investing. "Socially Responsible Investing at TIAA-CREF" updates participants and the public on these activities. Over the past year, the organization has acted on behalf of participants in varied areas, including:
I. Shareholder Advocacy
In the 2007/2008 proxy season, TIAA-CREF introduced and/or voted on more than 700 shareholder resolutions at over 7,000 annual meetings related to environmental, social and governmental issues.
An independent report published in February 2008 lauded TIAA-CREF's proxy voting guidelines in general and voting record on product toxicity issues in particular. The report recommended that the mutual fund industry adopt proxy voting guidelines similar to TIAA-CREF.1
Executive Compensation
A 2007 study by the AFSCME and the Corporate Library ranked TIAA-CREF first among 29 major mutual fund firms for voting most consistently to limit excesses in executive compensation.2 In 2008, TIAA-CREF supported shareholder resolutions in support of advisory votes on executive compensation at more than 90 companies.
The Teachers Insurance and Annuity Association of America (TIAA) was one of the first U.S. companies to voluntarily adopt and the first to implement an advisory vote on executive compensation policy. Last year, TIAA policyholders overwhelmingly supported the company's approach to compensation.
TIAA anticipates a similar result today. While results will be finalized later today, nearly 82% of policyholders who voted approved the quality of TIAA's executive compensation plan and disclosure, including its connection to performance, achievement of TIAA's business objectives and creation of long-term value for policyholders.
In the 2007/2008 proxy season, TIAA-CREF-authored proposals on executive compensation policy and disclosure gained significant shareholder support at Johnson & Johnson and PepsiCo3, and engaged 12 other companies in private, confidential dialogue on this topic.
Climate Change
TIAA-CREF voted for 100% of proposals requesting that companies publish a climate change report.
Sustainability and Community Impact
TIAA-CREF voted for 95% of proposals requesting companies to file a sustainability report, and for 85% of proposals requesting that companies report on the community impact of their operations or potential operations.
Subprime Credit Crisis
TIAA-CREF withheld votes from audit or risk committee directors at a number of companies because of their failure to effectively oversee risk management of investments in subprime mortgages securities.
Equal Employment Opportunity
TIAA-CREF voted for 100% of proposals asking companies to include sexual orientation in its Equal Employment Opportunity policy.
To view TIAA-CREF's proxy voting records, visit TIAA-CREF Governance.
II. Encouraging Companies to End Ties to Sudan
Over the past year-and-a-half, TIAA-CREF has pursued a campaign of engagement to encourage 22 portfolio companies with ties to the Sudanese government to sever those ties or take steps to ease the humanitarian tragedy in Darfur. Together, shares in companies with ties to Sudan comprise less than two percent of the $420 billion in assets that our company manages (as of 3/31/08).
Results of Engagement
TIAA-CREF has significant experience in engaging companies and assessing their responsiveness to its concerns. The organization's corporate governance team completes its own research and assessments, in addition to reviewing the analysis of social research firms and other analysts. TIAA-CREF's engagement pursued alone or in concert with other investors, has encouraged companies to take the following steps:
Engaging with Companies in Asia
On a parallel track TIAA-CREF is working to introduce Chinese companies and Chinese governmental entities to the value of governing practices that promote shareholder value even when a company is majority state-owned. TIAA-CREF's discussions with organizations such as Amnesty International USA, the Association for Social and Responsible Investment in Asia, the Asian Corporate Governance Association and others 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.
TIAA-CREF has contacted several companies from China and elsewhere in Asia for dialogue on the Sudan, including PetroChina, Petronas and Sinopec. Because of the lack of history of shareholder dialogue among Asian companies, this effort is likely to be longer term, though TIAA-CREF has heard some interest from the companies in meeting to discuss TIAA-CREF's concerns.
Sudan-related Resolutions
In the 2007/2008 proxy season, TIAA-CREF voted in favor of several shareholder resolutions filed financial institutions that ask those companies' boards to address human rights issues, including the conflict in Sudan.
Effecting Change
TIAA-CREF views engagement as a long-term set of actions to influence practices of portfolio companies that have the potential to impact TIAA-CREF's investment performance. This approach is set forth in TIAA-CREF's Policy Statement on Corporate Governance ("Policy Statement"), which describes the organization's preference for engaging privately with companies when it perceives shortcomings in companies' governance (including environmental and social issues) that creates risk for investors.5
While engagement does not always make headlines, TIAA-CREF believes that it can have the strongest impact on companies by being a vocal shareholder, a role that would end if it were to sell its holdings in companies whose behavior it seeks to influence. TIAA-CREF believes that no matter where a company is located, once it elects to enter the public capital markets it becomes subject to basic principles of corporate governance.
TIAA-CREF also recognizes 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 recently, "It takes all kinds of activism from investors to really influence companies. The divestment movement is strengthened by the engagement movement."6
TIAA-CREF Participants Can Choose Sudan-Free Funds
TIAA-CREF participants may wish to avoid investing in companies that have ties to Sudan. 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. The Account includes both domestic and international companies which have passed environmental, social and governance screens that factor in a company's ties to Sudan.
Social screens for investments in the Social Choice Account include the Global Sustainability Index compiled by KLD Research & Analytics, Inc. (KLD), an independent social investing research firm.7 In addition, many of TIAA-CREF's funds and accounts, including those investing in only domestic companies, are free of exposure to Sudan.
III. Labor Screens in TIAA-CREF's Socially Screened Funds
Over the past year members of TIAA-CREF's SRI team have held a series of discussions with senior leadership of the American Federation of Teachers, the Professional Staff Congress and New York State United Teachers about those organizations' concerns with labor practices at companies included in TIAA-CREF's socially screened funds.
TIAA-CREF selects companies for inclusion in the Social Choice Account and the Social Choice Equity Mutual Fund through use of the Broad Market Social Index (BMSI), a group of companies screened by KLD.
The BMSI begins with the Russell 3000 index, which represents about 98% of the total U.S. equity market. KLD then applies exclusionary and qualitative screens. Exclusionary screens assess companies' level of involvement with alcohol, firearms, gambling, military weapons, nuclear power and tobacco. KLD screens companies which remain for community relations, corporate governance, workforce diversity, employee relations (including domestic labor relations), environmental stewardship, product safety and quality, and human rights, which includes international labor issues. The screening process is multifaceted and involves weighing a company's strengths and weaknesses across a wide range of issue areas.
KLD assesses companies' employee relations by reference to their union relations, health and safety, retirement benefits, and work/life benefits. The human rights evaluation screens global companies for sweatshop labor, child labor, forced labor, prison labor and right to association. KLD assembles the underlying data upon which it rates companies from a variety of corporate, governmental and non-governmental organizations, and news media sources.
Excluded and Included Companies
The BMSI currently excludes shares of the Coca-Cola Company, which is disqualified for, among other things, failure to protect the rights of workers at its bottlers around the world, especially in Colombia; controversies regarding the negative impacts of its products and marketing on children's health; and a legacy of employee diversity problems. The BMSI also excludes Wal-Mart, for, among other things, labor-related concerns.
KLD added Nike to the BMSI in 2005 after determining that the company had shown both improvement and continued leadership within its sector in a number of areas, including supply chain management, the environment, transparency and willingness to engage in dialogue with stakeholders, and social responsibility reporting. KLD concluded that, in contrast to Nike's record on supply chain issues in the late 1990s, the company has established policies and provided disclosure that stands out among its sector peers.
Integrated Strategies at Work
While the BMSI excludes ExxonMobil from the CREF Social Choice Account and other screened investment portfolios, TIAA-CREF owns shares of the company in other, non-screened portfolios. At ExxonMobil's 2008 annual meeting, TIAA-CREF supported three shareholder proposals that addressed the company's environmental performance and one that focused on including more independent leadership of the board. These four proposals sought to persuade ExxonMobil to:
TIAA-CREF's votes were in keeping with its proxy voting policies and reflected its concern that ExxonMobil's management may not be conducting the strategic analysis necessary to address the short and long-term impacts of the company's operations and products on local and global environments.
IV. Community Investing to Help Meet Specific Local Needs
Community and proactive social investing is a growing part of TIAA-CREF's comprehensive approach to SRI. In 2008, the organization expanded or enhanced several community investing initiatives, funded through the TIAA General Account.
Global Microfinance Investment Program
In February 2008, TIAA-CREF made a $10 million investment in Catalyst Microfinance Investors (CMI), a private equity investment fund focused on microfinance opportunities in Africa and Asia. This investment is part of TIAA-CREF's $100 million, four-year Global Microfinance Investment Program (GMIP) that began in 2006 with a $43 million investment in ProCredit Holding AG, a leading microfinance company.
TIAA-CREF also participated in a $125 million private funding of Catalyst Microfinance Investors, marking the largest collective equity capital commitment to microfinance ever and TIAA-CREF's second investment within its GMIP.
Community Bank Deposit Program
Through this program, launched in January 2007, TIAA-CREF makes sizable investments in FDIC-insured certificates of deposit at local community development banks that help underserved communities. The first investment was for $22 million with subsidiaries of ShoreBank Corp., America's largest community development bank. TIAA-CREF has rolled these initial deposits into 2008 and is in the process of identifying additional banks through which it can expand its overall investment in this program.
Corporate Social Real Estate Program
This program focuses on investments in affordable housing, workforce housing, urban and transit-oriented commercial development, and sustainable ("green") development. As of March 2008, TIAA-CREF had an aggregate committed amount of approximately $572 million representing multiple investments in areas earmarked as Economic Development Areas and/or Lower to Moderate Income census tracts. Examples of recent investments include the following:
Finally, TIAA-CREF continues in its commitment to finance affordable housing nationwide through its revolving loan and hybrid debt investments with Impact Community Capital on the West Coast, and with Community Preservation Corporation in the northeastern United States.
V. Applying Sound Governing Practices to TIAA-CREF
While TIAA-CREF is not a public company, the organization has, where practicable, instituted practices it espouses for public companies in which it invests.
About TIAA-CREF
TIAA-CREF (www.tiaa-cref.org) is a national financial services organization with more than $420 billion in combined assets under management (3/31/08) and the leading provider of retirement services in the academic, research, medical and cultural fields.
1 Published by the Investor Environmental Health Network (IEHN) and the Rose Foundation for Communities and the Environment. The full report is available at http://iehn.org/publications.reports.mutualfunds.php. TIAA-CREF is not affiliated with IEHN.
2 "Failed Fiduciaries: Mutual Fund Proxy Voting on CEO Compensation."
3 Johnson & Johnson: As of 3/31/08 24.8 million shares or 0.88% of their outstanding ($1.66 Billion) Pepsi: As of 3/31/08 16.3 million shares or 1.03% of their outstanding ($1.06 Billion)
4 See Sudan Divestment Task Force for a discussion of actions by ABB, Siemens and Rolls-Royce.
5 See TIAA-CREF Governance.
6 See "Quelling Activists' Revolt on Human Rights," Compliance Week, April 29, 2008.
7 More information about the Social Choice Account and its screens is available at www.tiaa-cref.org.
TIAA-CREF Individual & Institutional Services, LLC, and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products. Annuity products are issued by TIAA (Teachers Insurance and Annuity Association), New York, NY.
Because its social screens exclude some investments, the CREF 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.
The CREF Social Choice Annuity account is a variable annuity. Annuity account options are available through contracts issued by TIAA or CREF. These 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.
You should consider the investment objectives, risks, charges and expenses carefully before investing. Please call 1 877 518-9161 or log on to www.tiaa-cref.org for a current prospectus that contains this and other information.
Please read the prospectus carefully before investing.
© 2009 and prior years, Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), New York, NY 10017
