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TIAA-CREF Core Impact Bond Retail TSBRX Sustainability

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Sustainability Analysis

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Sustainability Summary

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TIAA-CREF Core Impact Bond Fund has a number of attributes that may meet the expectations of sustainability-focused investors, despite some issues worthy of attention.

This strategy has an above-average Morningstar Sustainability Rating of 4 globes, indicating that the ESG risk of holdings in its portfolio is relatively low compared with those of its peers in the US Fixed Income category. ESG risk provides investors with a signal that reflects to what degree their investments are exposed to risks related to material ESG issues, including climate change, biodiversity, product safety, community relations, data privacy and security, bribery and corruption, and corporate governance, that are not sufficiently managed. ESG risk differs from impact, which is about seeking positive environmental and social outcomes.

TIAA-CREF Core Impact Bond Fund holds itself out to be a sustainable or ESG-focused investment. In other words, ESG concerns are central to the investment process of this strategy. A fund with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. TIAA-CREF Core Impact Bond Fund has an asset-weighted Carbon Risk Score of 6.1, indicating that its companies have low exposure to carbon-related risks. These are risks associated with the transition to a low-carbon economy such as increased regulation, changing consumer preferences, technological advancements, and stranded assets.

Currently, the fund has 10.8% involvement in fossil fuels, surpassing 8.2% for the average peer in its category. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas. By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with controversial weapons, tobacco, thermal coal, and and small arms. Yet this goal is far from achieved, as the fund exhibits 0.14% and 4.44% exposure to controversial weapons and thermal coal, respectively. This compares with 0.71% and 1.67% for its average peer in the US Fixed Income category.

The fund has a modest level of exposure (3.11%) to companies with high or severe controversies. Companies with controversies are involved in incidents such as corruption, employee abuses, and that pose some degree of business risks to the company. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. In addition, they controversies can damage the reputation of both companies themselves and their shareholders.

ESG Commitment Level Asset Manager

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Nuveen continues to evolve its already strong responsible-investing credentials by achieving environmental, social, and governance integration across most asset classes, expanding the Responsible Investing team, and improving transparency, but room for improvement remains. The firm maintains a Morningstar ESG Commitment Level of Advanced. The firm draws on a legacy of mission-driven and responsible investing, or RI, through parent company TIAA, but Amy O'Brien's promotion to head of RI for TIAA/Nuveen and the subsequent buildout of a dedicated RI team following TIAA’s acquisition of Nuveen in 2014 kickstarted the effort to embed RI into every fragment of the firm. As of October 2022, nearly 100% of the firm’s assets systematically consider ESG risks, whether part of a branded ESG mandate or not. This derives from the firm’s conviction that ESG risks are financially material. Beyond ESG integration, Nuveen is rolling out portfolio-level goals for reducing carbon emissions. In May 2021, TIAA’s General Account announced its aim to be net zero by 2050. Nuveen’s real estate business went further by committing to reach net zero by 2040. In June 2022, the firm launched Nuveen Global Net Zero Transition ETF NTZG, which targets net-zero carbon emissions by 2050 through a mix of engaging with portfolio companies to reduce their operational footprints and investing in emergent technologies to support climate change mitigation. Nuveen’s ability to retain and increase talent during a competitive job market gives it an edge over peers. In 2022, six professionals joined to support the firm’s ESG integration efforts, and four junior members joined to bolster the firm’s active ownership practices. Industry veterans such as O’Brien and Peter Reali, each of whom counts more than 15 years’ experience in ESG matters, steer junior talent in overseeing a unified strategy for responsible investing across Nuveen. In addition to its deep bench of specialists, the firm has refined its in-house database over the past four years. The tool centralizes high-quality ESG data, takeaways from engagement activities, and proprietary research insights for ready access by investment teams. Recent growth in the stewardship team strengthened Nuveen’s transparency and engagement initiatives. In 2022, the firm started publicly disclosing its rationales for all proxy votes at S&P500 companies and increased the number of engagements with portfolio companies, which provided the firm with additional insights to enhance investment decisions and expand its research around engagement efforts. In recent years, Nuveen supported roughly two thirds of key ESG shareholder resolutions, but the policy driving this strategy has room to improve. The proxy-voting guidelines lack specificity on environmental and social issues. Explicitly detailing desired outcomes on climate change and clearly outlining the firm’s escalation strategy for companies that lag on environmental and social priorities would bring the firm closer to best practice.