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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 "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 forward."

"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

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 kudos.

"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. Schueth.

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.

However, these 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."


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