This letter is in response to an August 3rd, 2007 letter from Scott Budde, Managing Director, Global Social and Community Investing, TIAA-CREF.

[PDF of Scott's Letter]

Dear Scott:

Thanks for your continued openness to our coalition's concerns regarding community investment (CI) and Social Venture Capital (SVC). Before responding to your specific comments, let me put those comments into a context as to why we must continue to push for certain investments. In the past we lobbied for and eventually there came to pass a socially responsible fund, and later improvements to that fund, such as positive screening, shareholder advocacy, and CI. We lobbied TIAA-CREF for perhaps fifteen years on CI concerns. But it was through more recent coalition discussions with two TIAA-CREF Executive VPs about the need for SRI institutionalization within TIAA-CREF, that that came to pass, including an exponential increased commitment to CI. Also, it was through introduction to you of John Biebel and Investors Circle that SVC is likely becoming a reality for TIAA-CREF. (Of course in all these, TIAA-CREF has and will continue to move in ways most beneficial to your clientele; and now your reach goes far beyond our interests, which is great and to be expected given the nature of your operations.).

I note this as a way of saying that for nearly twenty five years "WE HAVE NOT STEERED YOU WRONG." And that is because we have always consulted with top names in SRI to make sure we suggest viable SRI strategies that benefit many parties. And that is why we will continue with our interests regarding SVC and shareholder activism (which you know of otherwise).

Do know that even though we must continue our efforts, we congratulate TIAA-CREF in its strong SRI accomplishments. It is truly a leader in the field now. And this is due in no small part to your personal interest and work over the years (even before these concerns became institutionalized and a team was hired). I know where your heart is on these issues--it is evident from the enthusiasm in your voice when you discuss your initiatives.

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COMMUNITY INVESTMENT

As I stated in my message to Amy O'Brien, I am not an expert on CI and rely upon experts in the field who have worked with us over the years. Intuitively, what I asked Amy regarding CI was "Who benefits and how.?" Thus I am assuming (or say otherwise) that the bulk of TIAA-CREF CI benefits those of lower income, be it for housing or for reaping the benefits of businesses that come to deprived areas--and not gentrification--and that it does not involve large business enterprises taking advantage of those in deprived areas. And how easily can those of lower means benefit from such housing and business. Since so much of TIAA-CREF CI seems now to be in "Economic Development Areas," I am particularly interested in how those investments play out on our concerns. I know that ShoreBank and CDFIs generally do well on these concerns--and perhaps a paragraph near the end of your letter is trying to emphasize target clients. But I want to know explicitly for your various CI work. Thanks.

Certainly some of the investments you note for the new pro-social 2% in the Social Choice Account (SCA) look good--like immunization and pollution control efforts. And, yes, I would like to learn more about your Corporate Social Real Estate Program.

We do remain concerned about the quantity of your CI investment. Your current investment and CEO stated goals for such investment still seem low and are no where near the "at least 1%" goal of the Social Investment Forum (some, like the largest screened SRI fund of the Methodists, do much more). One percent would have TIAA-CREF placing over four billion in such enterprises. Doing that would, as I stated earlier, not only put TIAA-CREF head and shoulders above other leaders in the field, but actually put a real dent in the problem, which I'm sure is more important to concerned TIAA-CREF participants. (A small methodological note on the issue you raise about liquidity of investments: the CREF prospectus, unless recently changed, states that all CREF funds, including the SCA, can have up to 10 percent of assets in illiquid investment.)

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Social Venture Capital

Thanks for moving ahead with John and Investors Circle. You and John have both mentioned your interest in particular technologies that will be applicable, as well, to certain TIAA-CREF operations otherwise. Our hope is that once you find "success" with that, that you will move ahead with other SVC ventures on a much wider scale, and in ways not directly tied to TIAA-CREF operations otherwise. There are many opportunities in the field.

I must, however, respond to several of your arguments concerning how you feel limited in such investment--or that you have already moved ahead with SVC as regards microfinance or otherwise. Many of your points were already addressed in a message I sent previously (twice). I include selected excerpts below (slightly edited here to address some new concerns you raise). (I send these again, also, partly for the benefit of others receiving this email who have not seen those passages before.)

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• I thought I had explained well what we are seeking investment-wise regarding SVC, but maybe not. While we are certainly pleased that you do microfinance (MF) (or social real estate), that is not what we are talking about ("we" being those in Social Choice for Social Change/ Make TIAA-CREF Ethical, supportive faculty, assorted stakeholders, and the many hundreds of TIAA-CREF participants who pledged tens of millions of dollars for such investment--with our outreach to a very limited portion of your 3,000,000 participants in hopes of such pledges),
• Such folks (and our coalition) are not interested or thankful in just having something labeled as "SVC" in the SCA (or elsewhere within TIAA-CREF). They are not interested in just having a particular class of investment within TIAA-CREF --many are not even quite aware of the term "SVC." Our interest is in directly helping smaller or start-up companies pioneering new socially and environmentally responsible products and services. It is a type investment that complements well the MF you are doing--but just working on a different scale. It is investing far more than the thousand dollars or so that might go to MF. As worthy as MF is, we are talking about young companies needing hundreds of thousands or millions of dollars. We are talking about companies whose potential influence goes far beyond the immediate locale of MF's venue. We are talking about companies that have products and services that reach out to the world and affect large segments of populations (not just high end users you noted); e.g., new environmental technologies or vaccines usable generally in the third world, or even new materials for housing that can, indeed, provide for the low-income CI that you support (but at the national or world-wide level). Also, MF need not work with products/services that are inherently socially/environmentally responsible, even though they do serve a great purpose. We are not talking here about SVC as "community development/investment," which you note in your letter, though employment opportunities will expand some in the locale of the business--but the effects are much wider-based. Investment in such outlets can help promote a more humane U.S. private sector business economy (products and services on a large scale for the benefit of society as well as profit).
• As you have stated before, if your goal is to have "social impact," to be invited to conferences to promote a sector of investment, to be a leader in a field that needs leaders even more so now than does MF, this is a way to go. It is a field starting to get more attention in the SRI world, but REALLY needs someone like TIAA-CREF to infuse some capital and lend more credibility.
• TIAA-CREF has had a long standing investment section dealing with traditional venture capital that could be expanded to include exploration of SVC if so desired, even though it is typically on a smaller scale.

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Social Venture Capital in the Social Choice Account

• As noted above, from a small sampling of SCA participants we had many hundreds who pledged tens of millions to a new fund that would incorporate direct investment in pioneering companies of the sort mentioned above. There is interest.
• Certainly those SCA participants not in Traditional Annuity fund would like SVC in the fund. Though you say "most" in the SCA are in the Traditional Annuity Account and thus have opportunity for SVC otherwise, in fact there are still over thirty percent (your survey) not in the Traditional fund, which results in circa 100,000 participants not in that fund. One hundred thousand is a lot of people and these are the most hard core on SRI concerns. If there is a group of participants in TIAA-CREF who are most concerned with making for a humane economy-which helps all segments of society--it is those in the SCA. Don't they deserve this opportunity? (Analogously, far less than 30% of Americans don't have health insurance, but we still consider that a major problem in coverage.)
• Why not make the SCA the best it can be, further enhancing its social impact, and be a model for other socially responsible funds or institutional investors--another way that TIAA-CREF can be a leader in the SRI field, as it seems to desire.
• We heard the same basic argument when we wanted CI introduced into the SCA--there is more flexibility in the Traditional Account. Even if there is less flexibility in the SCA for SVC than in the Traditional Annuity, there is enough (as TIAA-CREF eventually concluded for introducing CI in the SCA). Yes, we would like to see the greater assets in the Traditional Account lead to greater SVC in that fund as opposed to the SCA, but why not be in both, why not add more money to such good and needed investment? Specifically, why not have SVC in the SCA?
• If Calvert has had a successful small SVC investment for its mutual funds for over fifteen years, it can happen for TIAA-CREF and the SCA.
• We are not seeking SVC in the SCA as a vehicle for CI, though you seem to discuss it in those terms; the type investments we seek go far beyond that.
• In a previous correspondence I covered arguments from one of the top people in SRI about ERISA or other concerns, so I won't address that again.
• We are not talking about diverting some of the "SCA pro-social 2% allotment" away from CI (though TIAA-CREF itself puts some into environmental technologies); we are talking about an additional 1 or 2% of the fund placed into SVC--a very small percentage. Calvert has a small percentage in both CI and SVC. And before adding these components many years ago, they introduced a shareholder resolution that resulted in overwhelming support (plus 90%, I believe); I am sure support would be strong for TIAA-CREF participants too. Translated into dollars, that is still plenty of millions going for good, with ample opportunities for such a level of investment.
• There are many models for such investment, from a Calvert design (say 30 selected companies), to a SVC fund, to a "fund of SVC funds" to be on the safe side, as some SVC folks have recommended to us as a safe model.
• I just don't see the argument of school administrators being hesitant of adding the SCA if it had in SVC. It would add such a small percentage of SVC and my guess is that if new markets have an interest in adding a socially responsible fund from TIAA-CREF, they will choose the one you have, trusting the general judgment of TIAA-CREF. Any venture capital has some risk, but TIAA-CREF already invests money that way without seeming to worry about concerns of its potential institutional customers. And apparently will do so now with SVC for the Traditional Annuity. Let me note that the $170 billion CalSTRS teacher pension program, now in relationship with TIAA-CREF, not only has a private equity option as its alternative for its participants, but puts 6% of assets of its main fund in private equity.

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Frankly, over the years, before adopting most all of what we have sought, we were told that what we suggested was not feasible financially, administratively, or even legally (at times). Further exploration found that it was always more a matter of will than skill. If you want to add SVC capital to the Traditional Fund you can. If you want to add it to the SCA you can. If others have, then you can, too. As I have said many times, why not make this SVC move for the SCA (and elsewhere) and then we will have exhausted our concerns about the SCA, leaving it the best it can be, and ending our long efforts for introducing and improving that fund. Then there is just the remaining work on shareholder advocacy; another worthy cause! I will continue to work in these ways to better the world in economic ways that also benefit others involved in the financial transactions. And I do so also, as you personally know, in the memory of my daughter. Thanks, Neil