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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.

SRI Mutual Funds GuideTIAA-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 TIAA-CREF.

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, “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.

For 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.

TIAA-CREF 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.”

According 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 “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 “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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