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TIAA-CREF Short Duration Impact Bd Retl TSDBX Sustainability

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Sustainability Analysis

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Sustainability Summary

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TIAA-CREF Short Duration Impact Bd Fd may not appeal to sustainability-conscious investors.

The ESG risk of TIAA-CREF Short Duration Impact Bd Fd's holdings is comparable to its peers in the US Fixed Income category, thus earning an average Morningstar Sustainability Rating of 3 globes. Funds in the same category rated 4 or 5 globes tend to hold securities less exposed to ESG risk. 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.

Based on its latest prospectus, sustainability or ESG factors are a focus in the investment process of TIAA-CREF Short Duration Impact Bd Fd. Funds with ESG-focused mandates are more likely to deliver positive sustainability outcomes. Its 7.4% involvement in carbon solutions is higher than the 4.8% average involvement of its peers in the Short-term Bond category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on.

Currently, the fund has 20.4% involvement in fossil fuels, surpassing 9.5% 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 2.54% exposure to thermal coal. This compares with 1.67% for its average peer in the US Fixed Income category. The fund has relatively high exposure (9.06%) to companies with high or severe controversies. Controversies are incidents that have a negative impact on stakeholders or the environment, which create some degree of financial risk for the company. Examples of types of controversies include bribery and corruption scandals, workplace discrimination and environmental incidents. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. Such controversies can also damage the reputation of both companies themselves and their shareholders.

TIAA-CREF Short Duration Impact Bd Fd has a 12-month asset-weighted Carbon Risk Score of 11.7. This is situated at the lower end of the medium carbon risk band, suggesting that its portfolio holdings are not among the worst-positioned to transition to a low-carbon economy, but they are not among the best-positioned either. Investors concerned about the transition risks may prefer to consider funds with negligible or low carbon risk. Such funds invest in companies that tend to operate in sectors less exposed to the transition (such as healthcare and IT) and/or companies in more carbon-intensive sectors (such as industrials and utilities) but that consider climate change in their business strategy and products, and therefore are positively aligned with the transition.

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.