Skip to main content

You are here


ESG Viewed as a Huge Opportunity for Advisors

Conferences & Events

With many clients being asked about ESG, plan advisors have an opportunity to engage with them in a way that could help differentiate themselves and lead to new growth opportunities, a panel of industry execs suggested at this week’s NAPA 401(k) Summit. 

In fact, the Department of Labor is expected to release a proposed regulation soon that could help move away from the “chilling effect” the previous administration’s guidance had on plan sponsor interest in ESG investments, noted Brian Graff, CEO of the ARA and Executive Director of NAPA. “I don’t know if DOL is going to go as far as requiring plan sponsors to think about ESG investments as part of a plan menu, but I am pretty confident we’re going to get a level playing field,” he told attendees. 

Graff was joined in the discussion by a wide range of industry experts, including: 

  • Karen DiStasio, Vice President and Head of Retirement Consulting Services with Commonwealth Financial Network;
  • Jania Stout, Senior Vice President of One Digital Retirement;
  • Joe DeNoyior, President of Retirement and Private Wealth with HUB International; 
  • Donald MacQuattie, Co-Head of Institutional Fiduciary Solutions with Raymond James; and
  • Charles Nelson, Vice Chairman and Chief Growth Officer of Voya Financial.

When asked by Graff where their firms stood in terms of ESG, most respondents noted that they are supportive of the initiative, even though many plan sponsors have not necessarily inquired about it. 

“We’ve actually incorporated ESG analysis into our wealth management programs, and our institutional program followed quickly thereafter. We think it’s going to be a level playing field, with every investment literally being reviewed and analyzed on its merits,” DiStasio noted. At this point Commonwealth is just including ESG investments in their equity options and they are comfortable doing that. DiStasio added that they’re not seeing a ton of demand now, but they have seen some successes, so she believes time will tell. 

From Raymond James’ perspective, MacQuattie notes that their advisors are their clients first and foremost, so it’s up to them in many ways versus a home office, top-down approach. He noted that they have undertaken an enormous project to move everything from broker of record into 3(21) and 3(38) advisor services. 

For the 3(38), MacQuattie notes that there are no ESG vehicles within those lineups, but the 3(21) is a different story. “You can do whatever you like with your plan sponsor to put together an IPS that’s going to make some sense for you,” he noted. To DiStasio’s point, however, he noted that there’s not a ton of demand, but he believes if it truly becomes a level playing field, that will make advisors and sponsors feel a lot better. 

Marketing Issues

Beyond the legal skepticism, Graff observed that it sounds like ESG still has a marketing problem, with many people not understanding what ESG is, along with various other views of what it means. For Stout, it comes down to having leadership and properly educating plan sponsors, just like with auto-enrollment years ago, when some clients might have initially said no to it. “I think just really showing leadership and understanding it, and then how you position this, will truly get your clients to open their eyes about it.”

Stout also noted that just in the last 12 months she has noticed that companies are starting to adopt ESG for their corporate philosophy, so now plan sponsors are listening to them a little bit more and want to talk about it. 

With respect to how to bridge those gaps in getting more implementation consistent with what companies are thinking from a corporate perspective, Voya’s Nelson observed that the U.S. is a bit behind in embracing ESG, but it’s coming. “We meet with analysts and investors, and every time there’s a question around ESG. What are you doing to embed it in your business? How are you embedding it? How are you acting as a company?” he explains. Board gender parity and environmental stewardship also come up in those discussions.  

“I think this is one of the greatest opportunities for advisors in your practices as you go forward, because businesses, whether they're publicly traded or they're privately held by private equity or ultimately a hedge fund, they're getting asked these questions,” Nelson added. If someone says that ESG is not a big deal, then ask them about diversity, equity and inclusion, he suggested—DEI is right up there with ESG; it’s not going away; and it goes hand in hand with ESG, he observed.

“When you start talking about what their corporate philosophies are or what they are doing with DEI, it puts you on a different level with your client,” added Stout. “You're now not just the guy or gal that comes in to do the 401(k) review—you become a strategic business partner with them, so it puts you at a much different level. I think that’s a huge opportunity for us as advisors.”

HUB’s advisors are not hearing client demand for it, DeNoyior says, but they are hearing more about it from some in the not-for-profit world. “I think it all comes back to best practices—when they bring it up so that their clients are aware of it or their committees are aware of it, then I think it starts that education engagement process,” he observed. 

DeNoyior also suggested one thing that might help the marketing of ESG: going beyond the notion of adding just one ESG fund on the equity side of the lineup and thinking that covers it. “I think we kind of missed the mark on that a little bit, and we’re starting to hear from our advisors, saying we can’t just put one in,” he explained. “If ESG portfolios are the No. 1 portfolio that is attracting assets for the wealth side, then maybe we should market it a little bit differently, like having a one-stop solution for these participants in the ESG side,” he suggested. 

Selection and Benchmarking

As for benchmarking, DiStasio suggests that there are several vendors out there that have good data, but you have to take it at face value. “You’ve got to do the homework, like we do on any investment,” she said. 

At Commonwealth, DiStasio noted, they do ESG benchmarking against non-traditional ESG investments because they think that’s what is needed. “We wouldn't be including ESG in our recommended fund list against, for example, a small cap value fund if we thought it didn’t meet all the criteria and it wasn’t collaborative. So, we are having success and the numbers are airing it out,” she noted. 

How are recordkeepers helping plan advisors get into this space and address the various implementation issues? Nelson explains that the nomenclature and the definitions of classifications is a challenge. “I think for many recordkeepers, most of us will use a source or two to determine if a fund is ESG certified or not. We have the capabilities, so we can do a lot of those types of things, but the broader challenge that I think we have with it is that it’s not necessarily a litmus test, that it’s either yes or no, because many investment managers and fund managers will apply and utilize ESG principles in their investment philosophy and their processes.”

Nelson notes that there are funds that are classified as ESG and a broader list available that can get you a large part of the way there, but are not completely an ESG fund. In fact, MacQuattie notes that while Raymond James’ 3(38) lineups don’t have an ESG fund per se, they do have a number of managers that apply lots of screens. 


The panelists generally agreed that they are seeing ESG-related issues show up more in RFPs. In addition to questions about whether they have ESG funds in their lineups, Nelson notes that Voya is getting more questions on DEI and on their purchasing and procurement policies, as well as things that are connected through ESG principles. “We are getting those kinds of questions very consistently in RFPs, and certainly when you’re in the tax-exempt public sector, those are kind of a standard set of questions,” he said. 

DeNoyior noted that at HUB they have also seen an uptick among larger plans, and for one of their advisors, the first several questions in a recent RFP were in relation to ESG and DEI. “It wasn’t just to check a box in their RFP; they actually cared about those issues when it came to our investment due diligence process,” he noted. 

What about pushback and strongly held views about whether plan fiduciaries should be considering ESG factors to begin with? Stout observed that if the largest group in their labor force in the next few years cares about where they’re putting their money, and if that can incentivize people to save more, then she views that as a good thing. “I don’t think that just because you choose an ESG fund, that you’re not going to get good performance,” she said. “The funds we found are meeting the criteria. I think there’s enough out there that you can still provide good performance, but also be more relatable to the people that are going to be the major labor force in the next few years.” 

“Look, you can run your practice how you want, and you all should. But there’s a reason investors and shareholders are asking about this around the world and increasingly in the U.S,” added Nelson. “And I really believe it’s going to continue to build here in the U.S., and those advisors that lean into it and can find a way to engage with their customers in a different way on this will find some new growth as well.”