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TIAA - CREF

PRI reporting framework 2018

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ESG incorporation in actively managed fixed income

Implementation processes

FI 01. Incorporation strategies applied

01.1. Indicate 1) Which ESG incorporation strategy and/or combination of strategies you apply to your actively managed fixed income investments; and 2) The proportion (+/- 5%) of your total actively managed fixed income investments each strategy applies to.

SSA
0 Screening alone
0 Thematic alone
0 Integration alone
95 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
5 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (financial)
0 Screening alone
0 Thematic alone
0 Integration alone
94 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
6 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (non-financial)
0 Screening alone
0 Thematic alone
0 Integration alone
97 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
3 All three strategies combined
0 No incorporation strategies applied
100%
Securitised
0 Screening alone
0 Thematic alone
0 Integration alone
98 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
2 All three strategies combined
0 No incorporation strategies applied
100%

01.2. Describe your reasons for choosing a particular ESG incorporation strategy and how combinations of strategies are used.

At TIAA Investments, we believe that the integration of environmental, social and governance criteria in our investment process can help identify and mitigate credit risk across the diverse spectrum of fixed income issuers. By broadening the scope of our due diligence, financial modeling, and engagement, we can better capture a wider range of material information in our investment decisions.

Our ESG-focused fixed income funds meet specific client demand for investing in a way that explicitly accounts for ESG criteria within the investment process. These funds also include a thematic portion that follows proprietary ESG guidelines. All thematic investments seek clear and measurable social and environmental outcomes alongside competitive risk-adjusted returns.

Screening strategies are applied to meet specific goals at the firm level and for individual clients. At the firm level, we use negative screening to prevent investment in markets that are subject to legal state and federal sanctions, as well as for specific companies identified with material operations in Sudan. At the request of specific clients, we may also implement negative screening strategies in Separately Managed Accounts (SMAs).

01.3. Additional information [Optional].


FI 02. ESG issues and issuer research (Private)


FI 03. Processes to ensure analysis is robust

03.1. Indicate how you ensure that your ESG research process is robust:

03.2. Describe how your ESG information or analysis is shared among your investment team.

          Material ESG information is communicated between Research and Portfolio Management, and may be documented in earning notes or initial credit reviews.
        

03.3. Additional information. [Optional]

TIAA Investments' ESG integration strategy in public fixed income includes increasing access to ESG research and data, educating research analysts and portfolio managers through external speakers, events, and webinars, and gathering information about ESG integration progress through an investment team survey.

Our strategy further expanded in 2017 to emphasize capturing internal views on issuer ESG performance.  In support of this goal, future efforts will include in-depth internal ESG training and dedication of additional investment team resources.

For private fixed income investments, individual investment teams identify and manage risks that apply to the specific assets that they oversee. For example, our private direct equity investments in agriculture, timberland, energy and infrastructure are subject to policies that mandate pre-deal due diligence activities, selection of appropriate partners and agents, use of operating risk scorecards and ongoing monitoring activities that seek to measure and mitigate risks (including environmental) at the asset level.

For the thematic portion of our ESG-focused funds, ESG information is captured in a quarterly reporting process detailing how each investment aligns with one of four themes. These reports are used in a periodic review with the investment team, which covers the eligibility of individual investments and recommendations for process improvement.


(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Securitised
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

04.2. Describe your approach to screening for internally managed active fixed income

All TIAA Investments holdings are subject to state and federal restrictions on holding securities issued by certain sovereigns or companies with ties to these sovereigns, such as Iran. We also restrict investment in both equity and debt securities issued by four companies with ties to Sudan due to concerns about potential involvement in human rights abuses.

TIAA Investments' ESG-focused funds are subject to certain positive/best-in-class and norms-based environmental, social and governance ("ESG") criteria for corporate and sovereign issuers.

For corporate issuers, the ESG evaluation process is conducted on an industry-specific basis and involves the identification of key performance indicators. The evaluation process favors companies with leadership in ESG performance relative to their peers. Typically, environmental assessment categories include climate change, natural resource use, waste management and environmental opportunities. Social evaluation categories include human capital, product safety and social opportunities. Governance assessment categories include corporate governance, business ethics.

Sovereign issuers must meet certain ESG criteria to be considered for inclusion in our ESG-focused funds. ESG assessments are based on risk management practices and ESG performance across several areas: natural resources, environmental externalities and vulnerability, human capital, economic environment, financial governance, and political governance.

04.3. Additional information. [Optional]

The Responsible Investing team manages the development, enhancement, and oversight processes for the ESG criteria used to establish the investment universes for TIAA Investments' ESG-focused funds. The team coordinates annually a comprehensive review of the firm's approach for implementing the Fund's ESG criteria and its primary ESG research partner, for approval by the Fund's Independent Board of Trustees.


FI 05. Negative screening - overview and rationale

05.1. Indicate why you conduct negative screening.

SSA

SSA

Corporate (financial)

Corporate (fin)

Corporate (non-financial)

Corporate (non-fin)

Securitised

Securitised

05.2. Describe your approach to ESG-based negative screening of issuers from your investable universe.

All TIAA Investments holdings are subject to negative/exclusionary screening based on state and federal restrictions on holding securities issued by certain sovereigns or companies with ties to these sovereigns, such as Iran. We also restrict investment in both equity and debt securities issued by four companies with ties to Sudan due to concerns about potential involvement in human rights abuses.

For clients who meet our minimum capital thresholds, TIAA Investments is also able to work with SMA (separately managed account) clients to implement custom solutions that incorporate ESG.

According to client preference, SMAs may be negatively screened for controversial business involvement, such as conventional and nuclear weapons, gambling, tobacco, and alcohol.

05.3. Additional information. [Optional]


FI 06. Examples of ESG factors in screening process (Private)


FI 07. Screening - ensuring criteria are met

07.1. Indicate which systems your organisation has to ensure that fund screening criteria are not breached in fixed income investments.

Type of screening
Checks
Negative/exclusionary screening?
Positive/best-in-class screening

other description

          Automated IT systems generate warnings for our portfolio managers if they attempt to invest in securities whose issuers do not meet the positive screening criteria.
        
Norms-based screening

other description

          Automated IT systems generate warnings for our portfolio managers if they attempt to invest in securities whose issuers do not meet the positive screening criteria.
        

07.2. Additional information. [Optional]

Explicit restrictions in the trading system prevent the execution of corporate and sovereign issuers on the state and federal restricted list.

Multiple checks also prevent the trading of securities from corporate and sovereign issuers that do not meet minimum ESG criteria for potential inclusion in our ESG-focused fund family or in our fixed income SMAs. However, an ineligible security could be held in the case where (1) an issuer previously held in the funds no longer met the minimum ESG criteria necessary for these portfolios or, in the case of corporate issuers, (2) a corporate action. In both cases, the portfolio manager will put the security up for sale. The trading desk will sell this security in an orderly fashion, to minimize market impact.


(B) Implementation: Thematic

FI 08. Thematic investing - overview (Private)


FI 09. Thematic investing - themed bond processes

09.1. Indicate whether you encourage transparency and disclosure relating to the issuance of themed bonds as per the Green Bonds Principles, Social Bond Principles, or Sustainability Bond Guidelines..

          Please see additional information below.
        

09.2. Describe the actions you take when issuers do not disburse bond proceeds as described in the offering documents.

As part of a periodic review process, the Responsive Investing team confirms eligibility for all impact securities according to our proprietary framework. If documentation of eligibility cannot be found, the RI team works with the portfolio manager to reach out to the relevant issuer(s) for further information. If the issuer's response suggests that the security ultimately did not align with the impact framework, the portfolio manager would either reclassify the security as a non-impact holding or sell the position in an orderly fashion.

09.3. Additional information. [Optional]

Our proprietary impact framework is aligned with the Green Bond Principles, and we require the elements of transparency and disclosure listed above for labeled green bonds.  We also encourage issuers of unlabeled green bonds and other thematic bonds classified under the impact framework to follow these best practices as much as possible.  As market standards evolve, we will continue to engage issuers to increase transparency and disclosure over time.

TIAA Investments has been a pioneer in the green bond market since 2007. We are among the top 5 largest green bond investors in the market according to Bloomberg as of February 2018, holding nearly $2.5 billion in labeled green bonds across the firm (an increase of 40% since last year). We also frequently invest in unlabeled green bonds, as long as they meet the environmental and/or social criteria for our proprietary impact framework. Within the framework, the Renewable Energy& Climate Change and Natural Resources themes align well with both labeled and unlabeled green bond investment, while the Affordable Housing and Community & Economic Development themes align with social bond investment. In addition, we are represented on the Executive Committee of the Green Bond Principles, and have participated in standard-setting process of the Climate Bonds Initiative, S&P, and Moody’s.


FI 10. Thematic investing - assessing impact

10.1. Indicate how you assess the environmental or social impact of your thematic investments

          Please see additional information below
        

10.2. Additional information. [Optional]

We require annual impact reporting for labeled green, social and sustainability bonds, and we encourage issuers of unlabeled thematic bonds to follow these best practices as much as possible.  In these instances, we may reach out to unlabeled thematic bond issuers to seek post-investment disclosure of impact metrics common for their project type (e.g. avoided CO2 emissions for renewable energy projects).  Our approach recognizes that impact reporting methodologies are nascent for many thematic investments, and uses the tools of engagement over the course of the investment to spread best practices.

In 2017, these efforts culminated in the first-ever aggregation of impact data at the fund level for our Social Choice Bond Fund.  The impact summary for the fund is publicly available online at: https://www.nuveen.com/Home/Documents/Default.aspx?fileId=73430


(C) Implementation: Integration

FI 11. Integration overview

11.1. Describe your approach to integrating ESG into traditional financial analysis.

At TIAA Investments, we believe that the integration of environmental, social and governance criteria can help identify and mitigate credit risk across the diverse spectrum of fixed income issuers. By broadening the scope of our due diligence, financial modeling, and engagement, we can better capture a wider range of material information in our investment decisions. As a long-term investor charged with safeguarding our participants' assets through retirement, ESG integration has long been an implicit part of our fixed income investment process. In 2015, we launched a strategy to make ESG integration more explicit and systematic across all of our public markets fixed income investments, which make up approximately 90% of our total fixed income AUM. This initiative has allowed us to build critical relationships with the fixed income leadership team, collect baseline data on ESG integration from research analysts through a department-wide survey, and pursue strategic initiatives to increase issuer ESG disclosure in key industries that will further support ESG integration. Today, ESG factors are primarily integrated in the fundamental research process when analysts determine that they are material to credit quality. Therefore, our ESG integration approach for each issuer type is described in terms of typical sources of ESG information that analysts may use, as well as any broad differences in the categories of information sought.

In 2017, we solidified a plan to increase investment team access to high quality ESG data, ratings, and research, hold in-depth internal ESG training sessions with research analysts and portfolio managers, and capture internal ESG convictions at the issuer level. These initiatives will deepen our commitment to ESG integration in fixed income in 2018 and beyond.

11.2. Describe how your ESG integration approach is adapted to each of the different types of fixed income you invest in.

SSA

ESG information is most often included as a qualitative part of the research process. For sovereigns, analysts may use a different set of ESG research sources than analysts for other issuer types. World Bank, World Economic Forum, and NGO resources such as Transparency International may be frequently used. For municipals, analysts may depend more strongly on ratings agency research, and may expand their view to include environmental indicators that capture local and regional resource challenges. Project bonds, which are relatively more common in the SSA category, may also integrate additional ESG factors on the social and environmental impact of the underlying use of proceeds.

Corporate (financial)

ESG information is most often included as a qualitative part of the research process. For financial corporates, analysts may look to issuer disclosures such as annual reports or investor presentations that contain governance commentary. ESG data aggregation platforms like Bloomberg, as well as the news media, may also be sources of ESG information particularly well-suited to corporate issuers.

Corporate (non-financial)

ESG information is most often included as a qualitative part of the research process. For non-financial corporates, analysts may include physical risk factors from potential social and environmental impacts of the issuer's operations. As with financial corporates, analysts may frequently look to issuer disclosures such as annual reports or investor presentations that contain ESG commentary. ESG data aggregation platforms like Bloomberg, as well as the news media, may also be sources of ESG information particularly well-suited to corporate issuers.

Securitised

ESG information is most often included as a qualitative part of the research process. Structured analysts focus primarily on the credit quality of the underlying asset pool, rather than that of the issuer/sponsor. However, analysts may consider governance factors at the sponsor level.

11.3. Additional information [OPTIONAL]


FI 12. Integration - ESG information in investment processes

12.1. Indicate how ESG information is typically used as part of your investment process.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Securitised
ESG analysis is integrated into fundamental analysis
ESG analysis is integrated into security weighting decisions
ESG analysis is integrated into portfolio construction decisions
ESG analysis is a standard part of internal credit ratings or assessment
ESG analysis for issuers is a standard agenda item at investment committee meetings
ESG analysis is regularly featured in internal research notes or similar
ESG analysis is a standard feature of ongoing portfolio monitoring
ESG analysis features in all internal issuer summaries or similar documents
Other, specify

12.2. Additional information [OPTIONAL]

ESG analysis is integrated into portfolio construction and security weighting decisions for our ESG-focused fixed income funds. This includes both a top-down asset allocation overlay and bottom-up fundamental analysis for individual security selection. The ESG criteria framework for all of the securities eligible for inclusion in the portfolio is developed by Nuveen’s Responsible Investing team and executed in partnership with independent external research partners.


FI 13. Integration - E,S and G issues reviewed

13.1. Indicate the extent to which ESG issues are reviewed in your integration process.

Environment
Social
Governance
SSA

Environmental

Social

Governance

Corporate (financial)

Environmental

Social

Governance

Corporate (non-financial)

Environmental

Social

Governance

Securitised

Environmental

Social

Governance

13.2. Please provide more detail on how you review E, S and G factors in your integration process.

SSA

For sovereigns, analysts may consider economic and political stability, financial governance, and political governance factors most material to credit quality. For municipals, analysts may take a wider view, including natural resource scarcity and human capital factors as well. Supranational and municipal project bonds may integrate additional ESG factors on the social and environmental impact of the underlying use of proceeds.

Corporate (financial)

For investment-grade financial corporates, business ethics, fraud, corruption, and tax management may be considered most material.

Corporate (non-financial)

For investment-grade, high yield, and emerging market non-financial corporates, business ethics, fraud, corruption, and tax management may be considered most material. High yield and emerging market corporate analysts may also include product safety and accident& crisis management in their research process. To compensate for potentially higher country risk, emerging market corporates may integrate economic and political stability, financial governance, and political governance factors as well.

Securitised

ESG analysis focuses primarily on the underlying asset pool, rather than the issuer/sponsor. However, analysts may consider business ethics, corruption, and fraud as the most material ESG factors at the sponsor level.

13.3. Additional information.[OPTIONAL]


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