TIAA-CREF says it sold World Bank bonds for market, not moral reasons

November 06, 2002

WASHINGTON (AFX-GEM) - The largest US pension system confirmed Wednesday it has dropped World Bank bonds from its portfolio but said the decision was driven by investment considerations, not protest by groups who say the bonds are environmentally and socially destructive.

"We have held World Bank bonds and we no longer do," TIAA-CREF spokesman Patrick Connor told AFX Global Ethics Monitor. Individual pension participants and activist groups had pressed the institution to divest, saying the bonds financed World Bank policies and projects that harmed the environment and drove down wages in developing countries, Connor said.

But, he added: "The only reason we don't have them now is that the returns would not be as attractive as other investments."

Connor was reacting to statements by the World Bank Bonds Boycott Campaign, a network of activists who said seven mln usd worth of bank bonds had "disappeared" from TIAA-CREF's books and who attributed this to activist pressure.

"There is a real possibility that, after receiving hundreds of letters, faxes, phone calls and e-mails, not to mention an impassioned plea to get out of World Bank bonds at their November 2001 annual meeting, they decided to quietly sell," said Neil Watkins, a boycott coordinator at the Washington-based Center for Economic Justice.

The sums involved were relatively small, he acknowledged. TIAA-CREF has some 275 bln usd in assets under management and the World Bank had some 110 bln usd in outstanding borrowings as of June 30.

Nevertheless, given the 2.5-million-participant pension system's prominence, Watkins said he hoped the decision to sell would make an impression on other institutional investors.

Connor, however, said that while some activists had urged TIAA-CREF to divest, "if you go back far enough, we've been criticized for not investing more in World Bank bonds by people who say the bank does good, not bad."

Watkins had been researching TIAA-CREF's holdings as part of an effort to mobilize a fresh round of participant pressure to dump the bonds ahead of the pension system's Nov 7 annual meeting.

The institution's 2001 list of investments included some five mln usd worth of bank bonds in the CREF Bond Market account; one mln usd in its Mutual Fund Bond Plus fund; and one mln usd in its Institutional Bond fund.

But the bonds were "nowhere to be found" in the pension provider's June 2002 semi-annual report, he said.

Two of the funds held bank bonds maturing in 2006 and the third, in 2010, he added.

The World Bank, which issued its first bond in 1947, said that in most markets, its debt instruments offer "a considerable yield pick-up over government bonds while providing the reassurance of a AAA-rating and the backing of the World Bank´s shareholders," namely its member governments.

"World Bank debt securities are included in virtually all main international bond indices that investors utilize as benchmarks for managing their portfolios," the lending agency added in a statement.

During fiscal 2002, which ended on June 30, it issued 22 bln usd worth of debt securities. It expected to issue less than 20 bln usd in bonds during fiscal 2003.

A number of leading US labor unions and a handful of cities have agreed to boycott the bank's bonds, as have socially responsible investment firms with combined assets under management of more than 16 bln usd.

The boycott is aimed at forcing the bank to cancel its debt claims against poor countries, back away from privatization and macroeconomic austerity programs, and stop funding oil, gas, mining and dam projects. abid.aslam@afxnews.com

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