March 20, 2007
TIAA-CREF Ups the Ante With New Stance on ESG Issues
by Anne Moore Odell
TIAA-CREF’s new policy statement and proxy voting guidelines address social, environmental and
governance issues, moving SRI arguments into the mainstream.
TIAA-CREF, one of the world’s largest
providers of retirement services, serving the academic, medical, research and cultural fields,
recently released its "Policy Statement on Corporate
Governance.” This new policy reads like a manual for socially responsible investing as it
updates the financial leader’s stance on many issues important to socially responsible investors.
Since this policy acts as a guide for TIAA-CREF's investment managers, portfolio companies would do
well to note the trail it blazes. With $406 billion invested worldwide, TIAA-CREF cuts a wide path.
TIAA-CREF’s trustees, management, and
corporate governance group created the new policy statement after more than a year of study. The
guidelines are intended to inform TIAA-CREF’s portfolio companies, participants, regulators,
advocacy groups, and other institutional investors on their positions. These newest guidelines put
social and environmental issues on par with corporate governance issues, breaking new ground for
The 40 page booklet publishes TIAA-CREF’s philosophy on many social,
environmental and governance (ESG) issues and includes an appendix that outlines proxy voting
guidelines. This fifth edition of TIAA-CREF’s policy statement puts its new guidelines in the
context of its active history of corporate governance.
Hye-Won Choi, Vice-President of
Corporate Governance for TIAA-CREF told Socialfunds.com, “We seek to take a balanced approach,
asserting our rights as shareholders, but not micromanaging, and letting boards exercise business
judgment in the affairs of the corporation.”
Over thirty years ago, TIAA-CREF was one of
the first institutional investors to work with companies on corporate governance issues. This work
extended into the 1990s when it worked on, among other things, board diversity and shareholder
rights. At the same time, the organization also paid attention to social concerns. In 1990 it
created the TIAA-CREF Social Choice Account, which now uses the KLD Broad Market Social Index as
its screening benchmark.
“Many of us believe TIAA-CREF’s positions and opinions help set
trends,” said Tim Smith of Walden Asset
Management. “Certainly their Policy Statement completely breaks down the ‘silos’ some pension
funds have created where corporate governance is seen as separate and sometimes more important than
social and environmental issues.”
TIAA-CREF holds stock in many domestic and global
companies and its first choice is private engagement with the companies it invests with. However,
it also engages with companies using a variety of methods: filing shareholder resolutions, by
voting against directors, public dialogue, collective action with other investors, and by seeking
regulatory and legislative relief. It would rather engage with companies than divest.
example, TIAA-CREF engaged with ten of its largest companies in Delaware, asking them to adopt
bylaw amendments requiring majority voting. These companies were selected based on a number of
factors, including the level of TIAA-CREF’s holdings in the company and their governance profile.
After private discussions, TIAA-CREF was able to persuade all ten of the companies to adopt
majority voting. It is TIAA-CREF’s policy not to name the companies and let them take credit for
taking these steps voluntarily.
One of the lenses through which TIAA-CREF crafts its
policies is as a long-term investor. An area where this view is especially important is executive
pay. It would vote against resolutions that impose arbitrary ratios or pay-caps on executive pay.
“Although we will make our voting decisions on a case-by-case basis, we will generally
support shareholder proposals seeking an advisory vote on compensation disclosure and proposals
seeking access to the corporate ballot if we believe that the conditions and procedures are
reasonable and will not be unduly disruptive to the company,” Choi stated.
approaches the impact of environmental and social responsibility issues from the viewpoint of
shareholder value. The policy reads: “There is a growing body of research examining the economic
consequences of companies’ efforts to promote good environmental and social practices. We support
companies’ efforts to evaluate the strategic relevance of these factors, including their impact on
business risk, reputation, competitive position and opportunities for growth.”
to Choi, TIAA-CREF’s approach to social and environmental issues “is that they should be treated by
boards in the same manner as governance issues. We don't want to micromanage, but we want to be
sure that boards of directors are giving consideration to CSR issues, analyzing the strategic and
economic questions they raise for companies, and disclosing their policies and practices fully to
shareholders,” she told Socialfunds.com. “The burden is on boards of directors to convince
shareholders that they have considered these issues from the perspective of shareholder returns and
reduction of risk,” she added.
The policy asks companies to address the following issues:
the environment, human rights, diversity, product responsibility, and society. It also includes
guidelines for some common environmental and social resolutions. TIAA-CREF generally supports
resolutions that seek reasonable disclosure on the social and/or environmental impact of a company.
“People in the SRI field are applauding the TIAA-CREF’s new guidelines,” Smith told
Socialfunds.com. “TIAA-CREF states clearly that environmental, social and governance issues all
have an impact on long term shareowner value and therefore it is their fiduciary responsibility to
be assessing company performance in these areas. They also urge company boards and management to
seek to excel in these areas.”
“TIAA-CREF's updated policy is a mirror image of the
transformation occurring in many pension funds who are active voices on issues like executive pay
and climate change,” Smith added.
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