TIAA’s $1.4 trillion portfolio is awash in fossil fuel investments
Its plan to address climate change is too small to be credible
TIAA needs to improve its carbon reporting and more carefully meet industry standards
Faculty senates, TIAA’s major customers and individual members are appealing to TIAA for action that more closely addresses the risk
IEEFA’s roadmap suggests a path that is achievable and practical
Over the last decade, a number of institutional investors have set a new standard for leadership on climate change. Universities, pension funds, churches, banks, and entire nations have divested their holdings in fossil fuels, driven by the long-term weak financial performance of coal, oil and gas stocks; the increasing frequency and intensity of droughts, storms, floods, and fire; and the scientific consensus on the causes of global warming. In late 2021, the Teachers Insurance and Annuity Association of America (TIAA) and its investment manager Nuveen issued a Climate Action Plan (CAP). The plan is modest and disappointing—with at minimum $78 billion invested in fossil fuels, TIAA has a long way to go to become a climate leader.
The financial case for fossil fuel divestment is strong. For most of the last decade, fossil fuel stocks clustered at the bottom of the market, overproducing and following an outmoded business model that exposed them to price volatility. With Russia’s invasion of Ukraine raising oil prices, the industry’s fortunes have improved. But the invasion has stripped away any pretense that the industry is governed by supply and demand. The high oil prices and improved financial fortunes of investors are now driven by command and control in Russia. Some producer and consumer countries have responded by doubling down on fossil fuel infrastructure expenditures and by pledging long-term support for fossil fuel consumption. However, it is clear that that future of the fossil fuel industry is both volatile and unstable.
TIAA’s failure to fully consider divestment as a mechanism to protect its portfolio is a striking lapse in its fiduciary obligations. TIAA has made it clear that climate risk is financial risk. The company’s failure to consider taking a strong defensive step and divest its fossil fuel holdings to clear its portfolio of the risk is logically inconsistent, financially imprudent and strategically unsound. It is difficult to see how its Climate Action Plan can meet its net zero goals without a clear, policy-based use of the divestment option.
Serving a customer base of educational, cultural, health and social service professionals who are knowledgeable about the dangers of fossil fuels and alarmed by rapidly accelerating global climate change, TIAA is well-positioned to undertake much more significant leadership on sustainable investing. The company claims its climate plan will eventually address its enterprise-wide $1.4 trillion portfolio of bonds, real estate, private equity and stocks. Its portfolio has been shaped by its legacy as an insurance company. The legacy leaves it with a portfolio weighted heavily in fixed income investments (bonds). To balance out the bond market, TIAA and its principal subsidiary Nuveen developed a private equity portfolio that adds higher returns and greater risk. The company’s substantial real estate portfolio is innovative when it comes to implementing climate initiatives, but it falls short in many other asset areas.
This review focuses on TIAA-Nuveen’s Climate Action Plan, and more broadly on its $1.4 trillion portfolio. The findings of the analysis are as follows: