This is not what green money management looks like

Tom Konrad, Ph.D., CFA

I don’t spend a lot of time reading ESG reports from investment companies, but a friend asked me to see a copy of the TIAA 2021 Climate Report. I was not at all impressed. Here are a few things from the report that triggered my greenwashing radar:

  • TIAA wants to work with companies to improve their behavior. They call it corporate engagement. “[W]I don’t expect [asset sales] to account for the majority of our emissions reductions – we focus primarily on corporate commitments” on page 9.
  • Much of TIAA’s focus is on reducing emissions from its own operations, rather than the companies in which it invests. For an investment company, the greenhouse impact of its offices and computers is minimal compared to the impacts of the companies in which it invests.
  • Although TIAA has set greenhouse gas reduction targets for assets it owns directly, it also manages more than four times as much money for other investors. The report completely ignores the greenhouse gas impacts of these investments.
  • Where TIAA has goals, they are long term, for 2040 and 2050. We must act now, not in a decade or two.

Given the urgency of the climate crisis-“Code red for humanityas the UN Secretary-General puts it – incremental change falls so far short of need that it’s hard to call it green.

Why company engagement is not enough

At best, working with companies to improve their behavior will produce incremental changes. Do we really see an oil company completely ceasing development of new fossil fuels and phasing out current operations over the next 20 years due to shareholder engagement? The idea sounds laughable, but that’s exactly what an oil company should be doing if they plan to be part of the solution, and not just a small part of the problem. Even the most ambitious oil majors, like BP (New York Stock Exchange: BP) just hope reduce emissions from their own operations to zero by 2050. If they are still producing oil after 2050, they are part of the problem.

Engaging with companies to try to get them to reduce their carbon emissions is better than nothing, but stronger action is needed. The potential gains from shareholder engagement are good if a company only needs small changes to reduce its greenhouse gas emissions, but stronger measures are needed when a company’s core business causes climate change. If an investment management company wants to help solve the problem of climate change, the only real solution is to sell companies (like coal, oil and gas producers) whose core business is causing of climate change.

Too small

The difference between powering your computer with renewable electricity and powering your computer with coal-generated electricity is negligible if what you’re doing with that computer is buying shares of Exxon Mobil (NASD: XOM).

Like an oil company that aims to reduce emissions from its own operations to zero, while ignoring the emissions when its customers burn the fuels it produces, an investment management company that reduces its own emissions while ignoring the emissions of the companies in which it invests in misses the point. TIAA does just that.

Seemingly without intentional irony, TIAA included the following outline of its emissions goals in its report (slide 17):

The smaller orange/green triangle represents carbon emissions from TIAA’s own operations (i.e. the energy that heats and cools its offices and powers its computers.) The larger blue triangles represent emissions funded by assets that TIAA owns directly. The (even larger) financed issues of companies held by TIAA mutual funds and other investment products are not even presented. (TIAA has $1.3 trillion under management. The general account and real estate assets shown in the diagram are only about a quarter of that…and they still make emissions from TIAA’s own operations seem insignificant.)

In short, TIAA’s climate goals only cover about a quarter of the carbon emissions of the investments it manages…those over which it has the most control. A more accurate picture of the relevant sizes of TIAA targets (and lack thereof) would be presented in the diagram expanded below:

(Author’s diagram. Large gray triangle drawn as approximately 4x the area of ​​TIAA’s general account, to reflect the relative sizes of TIAA’s assets under management.)

Too late

Even though TIAA’s goals covered all of its assets under management, including only the 2040 and 2050 goals with no meaningful short-term goals, this means that these goals fall far short of what we need to accomplish to avoid the worst effects of change. climatic.

According to the International Panel on Climate Change, the entire world (and therefore all assets in which TIAA invests, including those it manages for others) must be net zero carbon emissions by 2050. To get there, we can’t leave most of the work until the last few years. We need to make meaningful progress by 2030. For TIAA, this could mean raising its 2040 net zero goals (Nuveen Real Estate and its own operations) to 2030, its 2050 goal for the general account to 2040, and to set additional targets for the fund it manages for others at one-third of the way to net zero by 2030, two-thirds by 2040 and net zero by 2050.

That’s what it would take for TIAA to stop being part of the problem.

To be part of the solution, leaders in green money management are going much further. A net zero portfolio can be built today. We also actively invest in companies that will help the world achieve net zero emissions and avoid major greenhouse gas emitters entirely. Not everyone can lead, so I’d be happy if TIAA stops being part of the problem. The earliest would be best.

DISCLOSURE: No positions at the companies mentioned.

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