Long-term Investments for a Sustainable Society
Using private equity to invest in energy and natural resources globally.
Heather Davis, BA ’82, MBA ’87, senior managing director at TIAA-CREF, spoke March 4th in the Finance and Sustainability Colloquium on how TIAA-CREF, a financial services firm, uses its abundant assets to invest in sustainable sectors in the global economy.
TIAA-CREF was founded in 1918 by American steel magnate Andrew Carnegie. Carnegie noticed how university professors, who are prone to frequent relocations, did not have a chance to create stable, long-term retirement funds. To address this issue, Carnegie founded the Teachers Insurance and Annuity Association – College Retirement Equities Fund.
TIAA-CREF has over half a trillion dollar assets in bonds. Other companies, whose investors desire short-term returns, lack the time to make long-term investments. TIAA, on the other hand, works with retirement funds and therefore has more time to make prudent decisions that have long-term impacts.
Davis explained that this mission-focused company is astute in observing demographic changes in the world and identifying potential investments that can be generated from this change. The increase of disposable income among the middle-class, for instance, opens up opportunities for investment in natural resources such as trees and crops that are needed for the production of goods that are now in greater demand.
Davis cited two cases that illustrate the company’s work in sustainable investments. The first involves the host country of the two biggest sporting events in the world, the World Cup and Olympics. Brazil, explains Davis, is a country with abundant natural resources, one of which is water. There is so much water that Brazil powers most things with water. Yet problems arise in the dry season, when there is not enough water. Realizing that there has to be another way of meeting the demand for power, Davis and the company turned to their large sugarcane investments in Brazil. Noticing that sugar mills were simply burning most of their waste, the company suggested that this waste be used as a source of energy. Currently, Sao Paolo, the host city of the World Cup, is preparing to power the global event with sugarcane crops.
The second case takes place in apple orchards in the US Midwest. The company’s investments in real assets led to the purchase of a portfolio of agricultural investments including apple orchards. As with any agriculture business, apple orchards require labor. The company found itself competing with other local apple orchards for labor. Workers would spontaneously leave in the middle of harvest at the offer of better working conditions in rival orchards. This fierce competition for labor required an innovative solution. As a solution to this dilemma, Davis talked about how her son has autism. People with autism possess great power for intensity and focus. Davis saw this unique trait among autistic people and realized their ability to perform repetitive tasks without becoming exhausted was perfect for labor at apple orchards. The company, after legal procedures, sourced a very dedicated, loyal workforce from people with autism. Davis believes that this can also be a great solution for industries in Brazil whose companies are required to hire 10% of their workforce with people with disabilities.
As for the social impact of the company’s investments in local communities, Davis spoke with more skepticism. Davis explained that the company has to practice extreme caution with their assets; “It’s tricky,” she explained. “When you’re investing with other people’s money, you have to be careful where you invest. For instance, you have to invest where there is rule of law and stability.” However, Davis says that in the long run, it is the company’s desire to make positive changes in local communities.
Once a Cornell student herself, Davis also addressed the concern of employment and job opportunities in the sustainable investment sector. It appears that success in the area, like any other in the field of business, is contingent upon networking. “Choose a sector you’re interestd in,” advised Davis. “Find out which companies have the long-term money and who's figured it out."
Written by Hyungjin Choi, BA ’16