TIAA-CREF Social Choice Low
Carbon Equity Fund
Investing for competitive returns with a lower carbon footprint
Amy O’Brien
Managing Director
Head of Responsible Investment
Khalid Husain
Director
Responsible Investment
Manica Piputbundit
Associate
Responsible Investment
Jim Campagna
Senior Director
Portfolio Manager
TIAA-CREF Social Choice Low
Carbon Equity Fund
Lei Liao
Director
Portfolio Manager
TIAA-CREF Social Choice Low
Carbon Equity Fund
For many, global climate change is among the most pressing issues of our
time. Extreme weather, uncertainty about future carbon regulation, global
reports on the impact of fossil fuel divestment campaigns, and advances in
low carbon technology solutions have all sparked interest in low carbon
investments.
Recent calls for limiting or removing holdings in fossil fuel companies have
raised awareness and advanced the dialogue around how these issues can
be expressed in investment portfolios. Because of our five decades of
leadership in managing Responsible Investment (RI) strategies, we believe
we have the track record and expertise to respond to this growing interest.
The TIAA-CREF Social Choice Low Carbon Equity Fund is the latest in our
line up of ESG-focused funds, all of which incorporate comprehensive
environmental, social and governance criteria (ESG) into their investment
process. The TIAA-CREF Social Choice Low Carbon Equity Fund applies
additional criteria that take into account companies’ current and future carbon
emissions. With this latest addition to our Social Choice suite, you now have
more ways to make responsible investments, core investments.
In this Q&A, Portfolio Managers Jim Campagna and Lei Liao, along with
the Responsible Investment team, talk about how they manage the TIAACREF Social Choice Low Carbon Equity Fund.
Q. What is the investment goal of the Social Choice Low Carbon Equity
Fund?
A. The fund aims to provide a favorable long-term total return that reflects the
investment performance of the overall U.S. stock market while giving special
consideration to ESG criteria, including additional criteria related to carbon
emissions and fossil fuel reserves.
Q. Describe the fund’s ESG criteria and investment process.
A. We favor companies that are ESG leaders within their particular sectors.
ESG performance reflects a company’s positive and negative impacts on their
key stakeholders – employees, communities, customers, suppliers and the
environment. Performance evaluations are based on the ESG factors most
relevant to the industry the company operates in, and include monitoring for
TIAA-CREF Social Choice Low Carbon Equity Fund
adherence to international norms and conventions. The criteria for this fund
includes an additional focus on companies’ current and future carbon emissions,
with the goal of significantly increasing the portfolio’s ESG quality relative to its
benchmark while decreasing its carbon footprint.
Combining an ESG focus with a quantitative process to capture broad
market performance
We’ve developed a highly collaborative team approach to leverage
TIAA-CREF’s ESG and impact investment experience and bring the best ideas
together in making each investment decision. Our proprietary quantitative
process, coupled with an industry-recognized risk model, allows us to capture
the long-term performance of the broader market.
Steps in the investment process include:
•
Evaluating the investment universe for companies that meet our ESG
performance and low carbon criteria.
•
Building the portfolio using a proprietary mathematical process along
with an industry-recognized risk model. This allows us to meet our
investment objective to capture the long-term performance of the
Russell 3000® Index.1
•
Incorporating risk factors to help ensure the fund closely tracks its
benchmark.
Prudent risk controls in place managed daily
The portfolio managers use Barra’s risk model to match the portfolio
characteristics to the fund’s Russell 3000® benchmark. This forward-looking
model takes into account 13 fundamental factors such as volatility, value,
earnings variability and momentum as well as 55 industry group factors.
TIAA-CREF’s quantitative equity team reviews the model every day.
Q. Is the fund fossil fuel free?
A. Fossil fuel free is generally understood to be an investment approach that
does not include companies involved in the direct extraction of fossil fuels (oil,
coal, natural gas). TIAA-CREF is using the term “low carbon” because our
approach is broader, and the fund’s criteria addresses both current and
future emissions.
While our fund has not automatically excluded the energy sector, many of the
largest emitters, as well as owners of fossil fuel reserves (for example, coal, oil
and gas), do not meet the fund’s low carbon criteria.
Q. Are any energy companies included in the fund? What about oil and
gas or coal companies?
A. Energy sector companies that meet the ESG and low carbon criteria are
eligible for inclusion in the fund. While our process minimizes exposure to fossil
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TIAA-CREF Social Choice Low Carbon Equity Fund
fuels, it does not automatically exclude companies in the energy sector for
consideration in the portfolio. Firms that provide support and services to energy
companies, such as equipment and services, storage and transportation, drilling,
and refining may continue to be included.
However, the fund will have no exposure to coal, oil and gas exploration and
production companies.
Q. What’s the difference between this fund and the TIAA-CREF Social
Choice Equity Fund?
A. The Social Choice Equity Fund applies comprehensive ESG criteria, which
includes criteria related to climate change (for example, management of water
and natural resources, energy efficiency, environmental opportunities, and
investments in clean tech). The Social Choice Low Carbon Equity Fund includes
additional carbon criteria that address a company’s current and future
potential emissions.
As a result of the additional carbon criteria, some companies eligible for Social
Choice Equity would not qualify for Social Choice Low Carbon Equity. For
example, the Hess Corporation is considered a leader within the oil and gas
industry with a better-than-average track record on air emissions and water
usage, as well as commitments to sustainable management of natural
resources. However, it is excluded from the Low Carbon Equity Fund due to its
high exposure to future carbon emissions.
This is one example of how companies that may meet the ESG standard in the
Social Choice Equity Fund may not meet the additional criteria in the Social
Choice Low Carbon Equity Fund. It’s also one way the Social Choice Low
Carbon Equity Fund works toward a lower carbon footprint than the Social
Choice Equity Fund as well as its performance benchmark, the Russell
3000® Index.
Q. What type of fees should I expect to pay for the TIAA-CREF Social
Choice Low Carbon Equity Fund?
A. The fund’s fees are among the lowest in its Morningstar peer group.2
Q. Is there a full list of the securities in the TIAA-CREF Social Choice Low
Carbon Equity Fund?
A. For a complete, up-to-date list of full holdings in the TIAA-CREF Social
Choice Low Carbon Equity Fund, please visit:
https://www.tiaacref.org/public/tcfpi/Investment/Holdings?symbol=275751969
Q. How can I find out more about the TIAA-CREF Social Choice Low
Carbon Equity Fund?
A. Call 800 842-2252 or visit www.tiaa-cref.org/assetmanagement.
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TIAA-CREF Social Choice Low Carbon Equity Fund
1
®
The Russell 3000 Index is the standard against which the performance of the Social Choice Low Carbon Equity Fund
®
is compared. The Russell 3000 Index measures the performance of the stocks of the 3,000 largest publicly traded
U.S. companies, based on market capitalization. The index measures the performance of about 98% of the total
market capitalization of the publicly traded U.S. equity market.
2
Source: Morningstar. The average and median expense ratio for the Morningstar Large Blend category was 1.07%
and 1.05%, respectively as of September 30, 2015. The Fund’s Institutional Class gross/net expense ratios were
0.59%/0.32%. A contractual arrangement is in place that limits certain fees and/or expenses. Had fees/expenses not
been limited (“capped”), currently or in the past, returns would have been lower. The Expense Cap Expiration Date is July 31, 2016 for Social
Choice Low Carbon Equity Fund. Please see the prospectus for details.
The fund is subject to certain risks, such as market and investment-style risks. Please consider all risks carefully prior to investing. Because its ESG
criteria excludes some investments, the fund may not be able to take advantage of the same opportunities or market trends as funds that do not
use such criteria. Investments in small- to medium-sized corporations are more vulnerable to financial risks and other risks than larger corporations
and may involve a higher degree of price volatility than investments in the general equity markets.
®
The Russell 3000 Index measures the performance of the stocks of the 3,000 largest publicly traded U.S. companies, based on market
capitalization, and it measures the performance of about 98% of the total market capitalization of the publicly traded U.S. equity market. You cannot
invest directly in this index. Russell 3000 is a trademark and service mark of the Frank Russell Company. TIAA-CREF products are not promoted or
sponsored by, or affiliated with, the Frank Russell Company. You cannot invest directly in this index.
You should consider the investment objectives, risks, charges and expenses carefully before investing.
Please call 877-518-9161or log on to tiaa-cref.org for product and fund prospectuses that contain this and
other information. Please read the prospectuses carefully before investing.
TIAA-CREF Individual & Institutional Services, LLC, Teachers Personal Investors Services, Inc., and Nuveen Securities, LLC, Members FINRA and
SIPC, distribute securities products. Annuity contracts and certificates are issued by Teachers Insurance and Annuity Association of America
(TIAA) and College Retirement Equities Fund (CREF), New York, NY. Investment products, insurance and annuity products: are not FDIC insured,
are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not conditions to any banking service or activity,
and may lose value.
©2015 Teachers Insurance and Annuity Association of America-College Retirement Equities Fund, 730 Third Avenue, New York, NY 10017
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