Tom Konrad, Ph.D., CFA
I don’t spend a lot time studying funding firm ESG studies, however a buddy requested me to try a replica of the TIAA’s 2021 Local weather Report. I used to be deeply unimpressed. Right here are some things within the report that triggered my greenwashing radar:
- TIAA needs to work with firms to enhance their conduct. They name this firm engagement. “[W]e don’t count on [asset sales] to account for almost all of our emissions discount — we’re primarily centered on firm engagements” web page 9.
- A lot of TIAA’s emphasis is on lowering emissions from their very own operations, somewhat than the businesses they spend money on. For an funding firm, the greenhouse influence of its workplaces and computer systems are tiny in comparison with the impacts of the businesses that it invests in.
- Whereas TIAA has set greenhouse fuel discount targets for the property it owns straight, it additionally manages over 4 instances as a lot cash for different traders. The report utterly ignores the greenhouse fuel impacts of those investments.
- The place TIAA does have targets, they’re long run, for 2040 and 2050. We have to act now, not in a decade or two.
Given the urgency of the local weather disaster– “Code purple for humanity” because the UN Secretary Normal places it– incremental change falls so in need of the necessity that it’s tough to think about it inexperienced.
Why Firm Engagement Doesn’t Reduce It
At greatest, working with firms to enhance their conduct will produce incremental change. Do we actually see an oil firm utterly ceasing new improvement of fossil fuels, and phasing down its present operations over the following 20 years due to shareholder engagement? The concept appears laughable, however that’s precisely what an oil firm must do if it plans to be a part of the answer, not only a smaller a part of the issue. Even essentially the most bold oil majors, like BP (NYSE:BP) are simply hoping to scale back the emissions from their very own operations to zero by 2050. If they’re nonetheless producing oil after 2050, they’re a part of the issue.
Participating with firms to attempt to get them to scale back carbon emissions is healthier than nothing, however stronger measures are wanted. The potential positive factors from shareholder engagement are fantastic if an organization solely must make small modifications to scale back its greenhouse fuel emissions, however stronger measures are wanted when an organization’s core enterprise causes local weather change. If an funding administration firm needs to assist clear up the issue of local weather change, the one actual resolution is to promote firms (like coal, oil, and fuel producers,) whose core enterprise causes local weather change.
Too Little
The distinction between powering your laptop with renewable electrical energy and powering your laptop with electrical energy generated from coal is negligible if what you do with that laptop is purchase shares in Exxon Mobil (NASD: XOM).
Like an oil firm that has a goal to scale back the emissions from its personal operations to zero, whereas ignoring the emissions when its clients burn the fuels it produces, an funding administration firm that reduces its personal emissions whereas ignoring the emissions of the businesses it invests in is lacking the purpose. TIAA is doing simply that.
Apparently with out meant irony, TIAA included the next diagram of its emissions targets in its report (slide 17): 
The tiny orange/inexperienced triangle represents the carbon emissions from TIAA’s personal operations (i.e the facility that heats and cools its workplaces and powers its computer systems.) The bigger blue triangles symbolize the financed emissions from the property which TIAA owns straight. The (even bigger) financed emissions from the businesses owned by TIAA mutual funds and different funding merchandise usually are not even proven. (TIAA has $1.3 trillion beneath administration. The overall account and actual property property proven within the diagram are solely a couple of quarter of that… and nonetheless they make the emissions from TIAA’s personal operations look insignificant.)
In brief, TIAA’s local weather targets solely embody a couple of quarter of the carbon emissions from the investments it manages… those the place it has essentially the most management. A extra correct image of the related sizes of TIAA’s targets (and lack thereof) could be proven within the expanded diagram under:
(Diagram by creator. Giant grey triangle drawn as roughly 4x the world of the TIAA normal account, to replicate the relative sizes of TIAA’s property beneath administration.)
Too Late
Even when TIAA’s targets coated all of its property beneath administration, together with solely 2040 and 2050 targets with out important shorter time period objectives implies that these targets fall far in need of what we have to accomplish to avert the worst results of local weather change.
Based on the Worldwide Panel on Local weather Change, the complete world (and therefore all property which TIAA invests in, together with these it manages for others) wants to provide internet zero carbon emissions by 2050. To get there, we will’t go away a lot of the work till the previous few years. We have to make important progress by 2030. For TIAA, this would possibly imply transferring up its 2040 internet zero targets (Nuveen Actual Property and its personal operations) to 2030, its 2050 goal for the final account to 2040, and setting extra targets for the funds it manages for others to be one third of the way in which to internet zero by 2030, two thirds by 2040, and at internet zero by 2050.
That’s what it will take for TIAA to cease being a part of the issue.
To be a part of the answer, inexperienced cash administration leaders go a lot additional. A internet zero portfolio might be constructed in the present day. We additionally actively spend money on the businesses that can assist the world get to internet zero, and keep away from the foremost greenhouse fuel emitters solely. Not everybody can lead, so I’ll be completely happy if TIAA simply stops being a part of the issue. The earlier the higher.
DISCLOSURE: No positions in any firms talked about.
