GOVERNANCE AND SUSTAINABILITY AT TIAA-CREF

A Strategy for Long Term Investing

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INTRODUCTION

• Shareholder Advocates for Largest Private Pension System in U.S.

• Approximately $402 billion under management (as of 9/30/2009)

• 3.4 million individual participants in the educational, research and non-profit fields

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UNIVERSAL OWNERSHIP

•Universal owners invest in the entire market

•Characteristics:

• Long-term investment horizon

• Absolute returns, not just relative

• Emphasis on market returns over individual companies

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UNIVERSAL OWNERSHIP: IMPLICATIONS

•Responsibility to act as an owner of companies

•Anticipate, rather than react to problems

•Consider uncertainties and externalities Help to establish market norms

•Insist upon transparency and accountability to shareowners

•Avoid micromanagement

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GOVERNANCE AT TIAA-CREF

•Vote Proxies

•Corporate Dialogue

•Thought leadership

•Establish relationship of trust through private, collegial engagement

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SUSTAINABILITY- DEFINITION

•Meet current needs without compromising the ability to meeting future needs

•Sustainability is important to long term company performance and market returns

•Economic, social and environmental dimensions

•Requires breadth of vision

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SUSTAINABILITY – ROLE OF COMPANIES

•Integrate sustainability into business strategy

•Engage stakeholders from the outset

•Establish corporate priorities and policies

•Develop corporate-wide internal management systems

•Disclose strategy, goals, results

•Review results and adapt

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SUSTAINABILITY - ROLE OF SHAREHOLDERS

• Promote long term shareholder and stakeholder value

• Ensure accountability and transparency

• Provide independent, credible perspective

• Serve as early warning system

• Help craft solutions

• Focus on market-wide impacts

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CLIMATE CHANGE – RISK AND OPPORTUNITY

•Regulatory (Taxes, regulation, lack of global standards)

•Market (consumer preference)

•Operational (need for adaptation)

•Reputation (risk or opportunity)

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CLIMATE CHANGE – TIAA-CREF RESPONSE

•Risks and opportunities: Real Estate, Equities, Corporate Brand

•Efficiency goal of 10% improvement over two years

•Seeking investments in emissions reduction technology

•Workforce housing investments

•Climate risk initiative

•Investor memberships

•Carbon Disclosure Project report

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APPENDIX

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TWELVE QUESTIONS ON CORPORATE CLIMATE CHANGE REPORTING (TIAA-CREF)

• Does the company publicly disclose its greenhouse gas (GHG) emissions on both an absolute and intensity basis? Is this analysis performed according to commonly accepted methodologies?

• Does the disclosure include all of the direct, indirect, and/or other GHG emissions that might be material for the company?[1]

• Does the report allow comparisons to past years? Does the company provide forecasts of future GHG emissions?

• Has the company analyzed all potential risks and opportunities on a company wide basis related to global warming, including regulatory changes, physical risks, and impact on the company’s market?

• Does the company’s business strategy anticipate the impact of the potential regulation of carbon emissions?

• Does the company have a strategy for adapting to any physical risks of climate change?

• Does the company’s strategy anticipate risks or opportunities related to the impacts of global warming on competitive positioning, including the value of company intellectual property?

• Does the company have long term goals and targets to measure the success of its GHG strategy? Does the company factor a cost of carbon into investment decisions?

• Does the company have adequate governance structures to provide oversight for its GHG strategy? Are there management systems in place that provide incentives for meeting these targets?

• Are the company’s public policy positions disclosed? Is it clear how they are consistent with the firm’s overall strategy around GHGs?

• Does the company explain why it has chosen not to include any of the above?

• Are we convinced?

[

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SUSTAINABILITY - POSSIBLE CORPORATE RESPONSES

Zadek’s Five Stages of Corporate Responsibility

Stage 1: Defensive. “Its not our job to fix that.”

Stage 2: Compliant. “We’ll do just as much as we have to.”

Stage 3: Managerial. “It’s the business, stupid.”

Stage 4: Strategic. “It gives us a competitive edge.”

Stage 5: Civil. “We need to make sure everyone does it.”

Source: Zadek, Simon. “The Path to Corporate Responsibility,” Harvard Business Review, December 2004, pp. 1–12

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STAGES OF SUSTAINABILITY GOVERNANCE

Stage 1: Viewing Compliance as an OpportunityExamples: Using Compliance to induce the company and its partners to experiment with sustainable technologies, materials and processes.

Stage 2: Making Value Chains SustainableDeveloping sustainable sources of raw materials and components; increasing the use of clean energy sources such as wind and

solar power; finding innovative uses for returned products

Stage 3: Designing Sustainable Products and ServicesApplying techniques such as biomimicry in product development; developing compact and eco-friendly packaging

Stage 4: Developing New Business ModelsDeveloping new delivery technologies that change value-chain relationships in significant ways; Creating monetization models

Source: Ram Nidumou, C.K. Prahalad and M.R. Rangaswami, “Why Sustainability is Now the Key Driver of Innovation”, Harvard Business Review, September 2009

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RESOURCES

Boston College Center For Corporate Citizenshipwww.bcccc.net

Carbon Disclosure Projectwww.cdproject.org

CERES Coalitionwww.ceres.org

Global Reporting Initiative www.globalreporting.org

TIAA-CREF Environmental Statementhttp://www.tiaa-cref.org/support/news/articles/gen0911_193.html