In response to a complaint filed by 300 customers of the Teachers Insurance and Annuity Association of America (TIAA), a major pension fund, Principles for Responsible Investment (PRI), a UN-affiliated initiative to encourage environmental, social and governance (ESG) investing, has opted to do nothing. This decision is disappointing in light of PRI’s aim to foster more sustainable investment practices globally.
It is noteworthy that PRI is undertaking a review of its standards because of changing responsible investment practices and the increasing demands of investors for more rapid change. The review and an update of PRI’s standards cannot come soon enough. The lack of follow up on the TIAA complaint reflects how out of touch PRI's review standards and processes currently are.
Further to the point, it is a breach of transparency protocol for PRI to offer no reason for its decision to do nothing about TIAA's poor performance on climate risk and impact. Perhaps the complaint demonstrates how out of touch PRI is and to offer a defense of TIAA would only compound the initiative’s lack of accountability. As American author/humorist Mark Twain once said, “It is better to keep your mouth closed and let people think you are a fool than to open it and remove all doubt.”
It has been a year since TIAA initiated its inadequate Climate Action Plan and we have heard nothing about it since. It has become increasingly obvious that the action plan is not a priority for TIAA and its inaction on mitigating climate risk also impairs PRI's credibility. TIAA's ESG-related investments are within the fund’s control and they have not acted accordingly.
IEEFA’s recent critique of TIAA’s Climate Action Plan (TIAA Fails Clients on Climate) found the plan to be too limited in scope, being applicable to only 10 percent of the company’s $1.4 trillion assets under management. The plan to cut emissions does not include any systematic review of climate and financial risks. These are clear fiduciary breaches.
PRI's response is a textbook example of how not to respond to legitimate concerns. PRI aims to be seen as a reliable industry watchdog on climate change and other ESG investment issues. Absent aggressive follow-up by the organization, PRI risks the label of “toothless paper tiger.”