July 15, 2005
TIAA-CREF Creates New Director of Social Investing Post But Refrains From Some SRI Strategies
by William Baue
TIAA-CREF enhances its proxy voting and practices some community investment, but finds obstacles to
supporting community development financial institutions and SRI venture capital.
Early last month, the Teachers Insurance and Annuity Association-College Retirement Equities Fund
(TIAA-CREF) appointed Amy Muska O'Brien to
the newly-created position of Director of Social Investing. The position carries much potential,
as the 15 year-old CREF
Social Choice Account is the world's largest socially screened fund for individual investors,
with just under $7 billion in assets and over 200,000 investors (it is open only to TIAA-CREF
participants.) However, the position will almost certainly be challenging, as TIAA-CREF
consistently faces criticism over whether its purported commitment to social responsible investing
(SRI) matches the reality of its actions.
"One of my first tasks has been to
solidify our participation in the leading SRI networks, including the Social Investment Forum [SIF] and Interfaith Center on Corporate
Responsibility [ICCR]," Ms. O'Brien told
SocialFunds.com. "I am very excited about joining TIAA-CREF at this time, as my new role involves
enhancing our long-standing commitment by helping to shape SRI policies and practices going
"My position is within the investment management department, but a large part
of my responsibilities will be to work with other areas of the company--for example, corporate
governance and public affairs," she added.
TIAA-CREF critics, who include Social Choice
for Social Change (SCSC--which has
been campaigning aggressively for TIAA-CREF to adopt comprehensive SRI policies since 1984) and Make TIAA-CREF Ethical, note that
the organization is notoriously compartmentalized. The degree to which Ms. O'Brien's position can
cross departmental lines may determine its efficacy in integrating social responsibility more
deeply into the organization.
"She's likely to be, at least initially, something of a
dangling participle," said Steve Schueth, president of First Affirmative Financial Network (FAFN), a nationwide network
of financial advisers specializing in SRI. Mr. Schueth, who is the former president of SIF,
participated in discussions between TIAA-CREF and SCSC over the past year. "We are not aware that
there is any team or group that's focused on SRI inside of TIAA-CREF--there's just this one person,
which I think could be problematic."
"If she has some real authority to work across
departments, she might have the ability to make a positive difference--it might be that she can
effectively influence the company from the inside out," Mr. Schueth told SocialFunds.com.
According to an April 1, 2005 letter from SCSC Co-Chair Neil Wollman
to TIAA-CREF Chair and CEO Herb Allison, SCSC agreed to refrain from its "more assertive tactics" a
year earlier, when TIAA-CREF agreed to consider SCSC's three-pronged proposal for its Social Choice
accounts. (TIAA-CREF manages two other SRI portfolios, with approximately $264 million in combined
assets.) The three prongs include: shareholder advocacy (including active proxy voting and
shareholder dialogue with portfolio companies to promote social and environmental best practice),
community investment, and SRI venture capital.
In ongoing negotiations lasting through
this spring, SCSC advocated to get a proxy resolution on the Social Choice Account ballot proposing
a change in the prospectus language to allow implementation of all three prongs, but TIAA-CREF
nixed this idea.
"Although the people we were talking with seemed to be positive and
supportive of that approach, it didn't happen in time," said Mr. Schueth. The CREF Annual Meeting convenes
next week, on July 19, and proxy ballots are prepared well in advance. "I really think it was a
matter of putting us off until some time in the future"
However, TIAA-CREF did implement
the first prong. According to a May 20, 2005 letter from a TIAA-CREF
executive responding for Mr. Allison, TIAA-CREF has developed proxy voting guidelines for its
Social Choice accounts.
"The guidelines incorporate the criteria that are used as screens
in the KLD Broad Market Social Index (BMSI), and will help to ensure that proxy votes
are cast consistent with the investment strategy of the Social Choice Accounts," wrote John Wilcox,
TIAA-CREF's newly-appointed senior vice president and head of corporate governance. "We expect to
begin to implement the new voting guidelines in the summer of 2005."
This news met with
"That's a big win, because potentially it brings another $7 billion in investor
assets where the proxies will be voted in accordance with 'mainstream' SRI criteria," said Mr.
Ms. O'Brien also notes that TIAA-CREF, which has $345 billion in assets, does do
some community investing.
"Currently, we have a number of community investment programs
including more than $170 million allocated to financing for low-income housing," said Ms. O'Brien,
who formerly served as director of corporate social responsibility for the Pension Board of the
United Church of Christ (PBUCC). "These
investments include purchasing Collateralized Trust Notes [CTNs] and low income housing tax credits
[LIHTC] secured by low income housing mortgages."
"We have also purchased equity
positions in two opportunity funds dedicated to affordable housing development, and we are
providing equity for the development of low- to moderate-income housing thru TPI Housing and
Teachers Mayflower LLC, both wholly owned subsidiaries of TIAA," she added.
community investments are not implemented directly through the Social Choice Accounts, and they
differ from what the SCSC is promoting.
"The type of community investment that the SRI
community advocates, which is primarily investment in community development financial institutions
[CDFIs], does not currently exist within TIAA-CREF," said Mr. Schueth.
In his letter, Mr.
Wilcox explains the obstacles to such investments.
"The Social Choice Accounts are subject
to the Investment Company Act of 1940, which requires that an account's Net Asset Value be
determined on a daily basis and limits the illiquid investments that an account can make," he
writes. "Because the proposed investments in community development fail to meet the requirements
of valuation, liquidity, and stated investment objective and strategy, we do not have any plans to
pursue them in the Social Choice Accounts."
"Venture capital for development programs
presents the same obstacles," he added.
Potential solutions to these obstacles do exist.
For example, Switzerland-based Blue
Orchard Finance and Connecticut-based Developing World Markets recently developed the first ever
securitized product (which can be priced daily) in CDFIs by pooling $42 million in loans to nine
microfinance institutions in seven countries.
"There are a variety of strategies out there
that that we could use to expand our existing SRI strategies--which include community investing,"
said Ms. O'Brien. "We look forward to working on these issues with the leaders in the SRI
community including Social Investment Forum and Interfaith Center on Corporate Responsibility."