Responsible investment primer

Responsible investment primer

Executive summary Responsible investment primer This document explains responsible investment, its four primary approaches and potential benefits for investors. The many facets of responsible investment An expanding investment discipline that recognizes the importance of environmental, social and governance factors across asset classes Assets committed to responsible investment approaches are increasing rapidly, with $8.72 trillion in the United States at the beginning of 2016, an increase of 133% in the last four years. 1 Primary approaches include: Funds that explicitly incorporate ESG criteria in the investment decision-making process Active ownership, where investors use their formal rights and informal influence to encourage companies to address ESG-related issues Impact investing, usually private market investments that are made with the dual intention of generating financial returns alongside measurable social or environmental benefits ESG integration, incorporating relevant ESG risks and opportunities in conventional investment analysis and decision making Investor demand for market-based solutions that can promote financial and nonfinancial value creation continues to grow Responsible investment: Promoting financial and nonfinancial value creation Responsible investment covers a wide range of investment decision making and active ownership approaches that apply environmental, social and governance (ESG) factors across asset classes. Many other terms and phrases are associated with responsible investment, including ethical investing, socially responsible investing, green investing, impact investing, sustainable investing and active ownership. Most of these terms refer to the ways that ESG information is integrated into investment analysis, portfolio construction and monitoring processes. Responsible investment concepts and principles are often used by investors with a long-term horizon. Responsible investment has become the globally recognized umbrella term for this discipline, in part due to the United Nations Principles for Responsible Investment (UN PRI 2 ), a global institutional investor network that has gathered steam since its launch in 2006. UN PRI now has over 1,700 signatory firms, 2 including TIAA Investments, representing $62 trillion in assets under management. 3 This is a rapidly evolving and multifaceted discipline, using a number of different strategies sometimes singly, but often in combination. 1. The Forum for Sustainable and Responsible Investment Report on US Sustainable, Responsible and Impact Investing Trends 2016 2. UN Principles of Responsible Investment website: https://www.unpri.org/directory 3. UN Principles of Responsible Investment 2016 PRI Annual Report, pg 4 http://annualreport.unpri.org/pri_ar-2016.pdf 1 Responsible investment primer

TIAA Investments: A leader in responsible investment TIAA Investments believes that considering ESG criteria in our investments can produce competitive, long-term financial returns for our clients, while also promoting broader economic development, positive societal outcomes and a healthier environment for future generations. For more than five decades, TIAA has been committed to the practice and continuous advancement of responsible investment and its key approaches. As a signatory to the UN Principles for Responsible Investment, TIAA Investments is committed to incorporating ESG issues into investment analysis and decision-making processes. ith more than $17 billion under management in ESG-focused products, TIAA Investments is one of the largest U.S. managers of portfolios that reflect explicit ESG criteria.4 Through the TIAA General Account, the firm has made more than $900 million in social impact investment commitments,5 which are private market and real estate investments in projects, companies and funds with the dual intention of generating a financial return and measurable social and/or environmental benefits. TIAA Investments is committed to active ownership practices across all asset classes. 4. TIAA Investments is one of the largest managers among ESG mutual fund, ETFs and variable insurance managers as of December 31, 2016 according to analysis of Morningstar Direct data from FUSE Research Network. Fuse Research Network is a source for industry guidance to firms in the asset management industry and for obtaining ongoing research and market intelligence. 5. Commitments data is as of December 31, 2016 Responsible investment primer 2

Responsible investment on the rise Responsible investment isn t a niche strategy. The principles and practices are used in a variety of ways and by a broad range of global investors. More than one in five dollars under professional investment management in the United States was invested in responsible investment strategies, according to a study by the Forum for Sustainable and Responsible Investment (US SIF Foundation) at the start of 2016. This represents $8.72 trillion in responsible investment assets up 133% in the last four years and includes both assets subject to ESG incorporation strategies and shareholder engagement. The number of UN PRI signatories has grown rapidly since 2006, representing $62 trillion in assets under management. Rapid growth in PRI signatories $70 60 50 40 30 20 10 1,600 1,400 1,200 1,000 800 600 400 200 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0 Assets under management (US $ trillion) Number of signatories Source: https://www.unpri.org/about Beyond public equity, responsible investment is increasingly applied in fixed-income strategies, directly in real-asset classes, such as timber, agriculture and real estate, and alternative asset classes such as private equity. ESG incorporation $8.1 Trillion Shareholder resolutions $2.6 Trillion Sustainable and responsible investment in the United States reaches $8.72 trillion at the start of 2016 Most investment strategies incorporate several approaches to responsible investment. This graph shows the overlap between ESG incorporation assets (applying ESG factors in investment decision making) and those involving active ownership. Source: US SIF Foundation Note: ESG incorporation assets in this figure include those in Community Investing Institutions 3 Responsible investment primer

Responsible investment encompasses diverse goals Investors adopt responsible investment principles for different reasons and sometimes seek to meet several goals simultaneously. Some investors would like to see their beliefs reflected in their investment portfolios; this approach is often referred to as values-based investing. Others are motivated by financial goals and seek the enhanced returns that they think can be achieved. Still others are driven by economic goals and believe that addressing sustainability megatrends will benefit the economy overall. The practice of responsible investment has been gradually evolving for decades and in recent years, has been refined with new approaches. One of the earliest expressions of responsible investment principles involved excluding investments in companies associated with certain business activities, such as tobacco or firearms. This practice, known as negative or exclusionary screening, is typically a values-driven approach and may represent the desire to apply moral or personal values to portfolio construction. Exclusionary screening is still used in many religious-based strategies or to fulfill mandates against investing in specific companies or industries. In many cases, this approach is used in combination with other strategies. Over time, the field has evolved to encompass approaches that acknowledge the relevance of ESG factors to long-term value creation. By seeking solutions for some of the world s sustainability megatrends climate change, resource scarcity, health and income inequalities investors are striving to build a more solid, sustainable foundation for future growth. Identifying how to benefit from these opportunities requires dedicated commitment from the investment management firm in resources and analytics. It is best to view responsible investment as a continuum of approaches that uses ESG criteria in investment decision making. In some cases, the application will be quite direct; in others, the consideration of ESG factors will be part of a larger matrix of information used to inform investment research and decision making. This diversity of implementation appeals to investors who may have different motivations for engaging in responsible investment. hat these reasons have in common is a desire to incorporate the consideration of ESG factors and a long-term view, both in terms of economic return and demonstrable ESG impact. Responsible investment primer 4

Responsible investment approaches ESG-focused funds ESG-focused funds, historically referred to as socially responsible investment (SRI) funds, explicitly include ESG criteria in their investment decision-making process. This is one of the more established responsible investment strategies with a history spanning several decades. Many early SRI funds initially focused on exclusionary screens. Over time, the application of ESG criteria expanded as ESG-related company research improved and client expectations changed. Many funds continue to apply some degree of exclusionary screening. However, wider adoption of a best-in-class, ESG leadership approach favoring companies that are industry leaders in managing relevant ESG risks and opportunities is becoming more prevalent. For example, a company leading its industry in natural resource usage may have more proactive policies and programs to protect biodiversity, and commitments to source raw materials from areas of lower ecological impact, compared to its peers. Additionally, select funds now emphasize thematic ESG-related criteria, for example, focusing on investments in companies primarily involved in clean technology or renewable energy. Impact investments Impact investments in companies, organizations and funds are intended to generate measurable social and environmental impact alongside a financial return. This approach builds on a long history of community investing, which seeks to create positive social outcomes and financial return in areas such as affordable housing. Based on the core principle that market-based solutions have the potential to play an important part in addressing global social and environmental challenges, the sector has broadened to encompass additional areas, including: sustainable agriculture, affordable and accessible healthcare, clean technology, and financial services for low-to-moderate income communities and underserved populations. More capital is flowing into this area of responsible investment, leading to the identification of new opportunities across emerging and developed markets, sectors and asset classes, with a wide range of investment return expectations. Impact investments can include private equity, private debt, real estate, cash or deposits. Although responsible investment began with emphasizing shareholder advocacy, it has evolved to include other approaches, such as ESG incorporation. Growth of responsible investment, 1995-2016 US $ Billion $10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 1995 1997 1999 2001 2003 2005 2007 2010 2012 ESG incorporation only Shareholder resolutions only Overlapping strategies 2014 2016 Source: US SIF Foundation 5 Responsible investment primer

ESG integration ESG integration considers relevant ESG risks and opportunities in conventional investment analysis and portfolio construction. Investment managers use different techniques to facilitate the incorporation of ESG information within their research and decision-making processes. These include expanding access to ESG-related research and tools to analysts and portfolio managers, modifying existing due diligence processes to include relevant ESG risks, and developing asset class or sector-specific ESG policies. Tactical and technical considerations are often specific to an institution or fund manager as well as an asset class. For instance, in assessing commercial real estate investments, an investment manager may consider how environmental initiatives, such as reducing energy and water consumption, may enhance the value of the asset. ESG factors may be a source of opportunity for investors. The increase in the quantity and quality of ESG metrics and data available to investors is promoting greater adoption of ESG integration in the market. Investment managers are developing new frameworks for promoting disclosure and assessing the effects associated with ESG factors. Improving ESG impact measurement supports investors efforts to extend responsible investment practices across all asset classes. Active ownership One of the most familiar responsible investment approaches is shareholder advocacy, usually expressed as engagement with publicly traded companies. The practice of active ownership is longstanding, encompassing proxy voting, filing or co-filing shareholder proposals, and dialogue with companies on ESG-related issues, such as executive compensation, environmental behavior, social responsibility and other industry-specific issues. Investors often use this approach, whether or not they have applied explicit ESG criteria when constructing portfolios. Many institutional shareholders believe they have a fiduciary duty to engage with the boards and management of their holdings. Increasingly, investors apply active ownership across asset classes. The specific activities differ depending on the assets involved. In public companies, most institutions focus on proxy voting and other more formal methods of engagement. If the investment is in a private company, the institution may use board seats to advocate for ESG-related principles. In the fixed-income arena, institutions may provide guidance to green bond issuers on characteristics needed to satisfy investor demand and disclosures on usage of proceeds. An investor in real assets, such as real estate, can engage with property managers on sustainability issues. Conclusion Responsible investment is now a globally recognized investment approach, gaining momentum among all kinds of investors. Although initially focused on shareholder engagement and community investing, the practice of responsible investment is now combining the full range of approaches into an overarching framework of investment activity. Globally, the emerging emphasis on responsible investment is facilitating more and better ESG research and tools to aid implementation. The overriding goal is long-term value creation, so that economic, social and environmental sustainability are delivered as an outcome of the investment management process alongside opportunities for robust, long-term investment returns. To learn about TIAA s approach, visit TIAA.org/HoweInvest. Responsible investment primer 6

Resources For more information about responsible investment: UNPRI: UN Principles for Responsible Investment www.unpri.org The United Nations-supported Principles for Responsible Investment (PRI) Initiative is an international network of investors practicing the PRI s six Principles for Responsible Investment. ILG: Investment Leaders Group http://www.cisl.cam.ac.uk/business-platforms/investment-leaders-group.aspx Formed in 2013, the ILG is a three-year project designed to promote understanding of how investors can realize positive long-term investment returns by managing environmental and social factors. USSIF: Forum for Sustainable and Responsible Investment www.ussif.org The Forum for Sustainable and Responsible Investment is the U.S. membership association for professionals, firms, institutions and organizations engaged in sustainable and responsible investment. GIIN: Global Impact Investing Network www.thegiin.org The Global Impact Investing Network is a nonprofit organization dedicated to increasing the scale and effectiveness of impact investing. This material is for informational or educational purposes only and does not constitute a recommendation or investment advice in connection with a distribution, transfer or rollover, a purchase or sale of securities or other investment property, or the management of securities or other investments, including the development of an investment strategy or retention of an investment manager or advisor. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made in consultation with an investor s personal advisor based on the investor s own objectives and circumstances. The initiatives described in this material involve risks that could result in loss of principal. Because social screening criteria exclude some investments, any products using these strategies may not be able to take advantage of some market opportunities or trends available to other products that do not use these criteria. Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not bank deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value. For information on other TIAA Investment products, including TIAA-CREF mutual funds, please visit TIAA.org or Nuveen.com for prospectuses concerning mutual funds and related securities. You should consider the investment objectives, risks, charges and expenses carefully before investing in any product. Please call 800-752-8700 or log on to TIAA.org or Nuveen.com for currently available product and fund prospectuses that contain this and other information. Please read the prospectuses carefully before investing in any product. TIAA Investments products may be subject to market and other risk factors. See the applicable product literature, or call 800-752-8700 for details. This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy or sell securities, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor s objectives and circumstances and in consultation with his or her advisors. TIAA-CREF Individual & Institutional Services, LLC, Teachers Personal Investors Services, Inc., and Nuveen Securities, LLC, Members FINRA and SIPC, distribute securities products. Annuity contracts and certificates are issued by Teachers Insurance and Annuity Association of America (TIAA) and College Retirement Equities Fund (CREF), New York, NY. 2017 Teachers Insurance and Annuity Association of America-College Retirement Equities Fund, 730 Third Avenue, New York, NY 10017 186089 141023251 (07/17) MBR-CRIPRMR-0417D