More 401(k) participants say having ESG options could inspire them to increase their contribution rate, the results of a new survey suggest.
According to Schroders’ 2022 U.S. Retirement Survey, 74% of DC plan participants who lack or do not know whether they have ESG investment options in their plan said they would or might increase their contribution rate if offered ESG options. This is up from 69% who said the same in the firm’s 2021 survey.
Most plan participants (87%) said they want their investments to be aligned with their values. They also see ESG as a driver of performance. According to the findings, 78% said they believe companies that are socially responsible (ESG focused) will have better results over time than companies not socially responsible.
Schroders further notes that of the 31% of 401(k) plan participants who knew their plan offered ESG options, 9 out of 10 invested in those options and almost three-quarters (73%) estimate they allocate 50% or more of their assets to socially responsible choices.
In addition, 40% report that having the ability to invest in ESG options in their 401(k) plan would improve how they view their employer.
“It’s no longer a question of if more ESG options will find their way onto 401(k) menus, but when,” says Deb Boyden, Head of U.S. Defined Contribution at Schroders. “Against this backdrop, plan sponsors should be taking steps to better understand the priorities and values of their participants to ensure menu options will put investors on a path toward better outcomes,” she notes.
Impact Areas
When asked which ESG segments they would like their investments to make an impact on, plan participants who currently invest in ESG or would if they had the option provided the following responses:
- Employee welfare/living wage (51%)
- Climate change/global warming/carbon reduction (39%)
- Human rights (36%)
- Biodiversity, such as pollution, deforestation and clean water (30%)
- Diversity and inclusion (22%)
- No specific area (17%)
“While ESG is most often associated with climate or decarbonization, according to our 2022 U.S. Retirement Survey, the top ESG issues for US investors are actually social in nature—focused on workers and communities,” observes Marina Severinovsky, Head of Sustainability, North America at Schroders. “It’s vital that plan sponsors keep this in mind as the regulatory landscape evolves and more ESG options find their way onto 401(k) menus.”
While for the moment, plan sponsors may be holding off from considering ESG investing due to the regulatory uncertainty until the Department of Labor finalizes its proposed rule. According to the Plan Sponsor Council of America’s 64th Annual Survey of 401(k) and Profit Sharing Plans, only 4.7% of plan sponsor respondents included an ESG option on their plan investment menu. In addition, only about 0.1% of plan assets were invested in those options.
In contrast, a recent Morningstar analysis found that as many as 48% of retirement plans with at least 100 participants already offer investment strategies that use ESG analysis to evaluate investments. The report acknowledges that this includes funds with a “broad definition” of ESG.
Schroders’ survey was conducted by 8 Acre Perspective among 1,000 U.S. investors nationwide ages 45–75 from Feb. 17–28, 2022. The survey included 317 respondents with employer-provided DC plans.
