To assist retirement plan sponsors considering the addition of investment options that address ESG criteria to their DC plans, the U.S. Sustainable Investing Foundation has released a five-step guide.
According to the organization, asset flows to sustainable investments at an all-time high, yet retirement plans are lagging in their incorporation of these funds. It notes that assets under professional management that take ESG factors into account in the U.S. increased by 42% between 2018 and 2020, from $12 trillion to more than $17 trillion, representing one out of every three dollars under professional management.
While most of this activity has been from institutional asset owners, the guidebook notes that studies from the Morgan Stanley Institute for Sustainable Investing and Natixis Global Asset Management show that demand from individual investors is on the rise.
“Sustainable investing strategies can be applied across all asset classes to promote stronger corporate social responsibility, build long-term value for companies and their stakeholders, and foster businesses or introduce products that will yield community and environmental benefits,” the foundation suggests.
Moreover, it notes that sustainable investing does not mean giving up financial returns, contending that numerous studies have concluded that there is not a performance cost to sustainable investing, on a risk-adjusted basis.
The five steps outlined in Adding Sustainable Funds to Defined Contribution Plans: A Resource Guide for Plan Sponsors are:
- increasing plan sponsor knowledge of sustainable investing and related performance and fiduciary questions;
- gauging participants’ interest in adding sustainable funds;
- discussing implementation with your consultant and/or plan administrator;
- choosing a funds or funds and monitor performance; and
- educating participants.
It also contains a summary of studies on the financial performance of funds utilizing ESG criteria, as well as updates on relevant Department of Labor regulations.
“The expected reversal of Department of Labor rules on the use of ESG criteria in funds included in retirement plans will provide plan sponsors will greater certainty about adding sustainable products to their offering,” says Lisa Woll, CEO of the US SIF Foundation. “This guide will help provide the tools to add such funds and to meet the increasing demand for sustainable investment options.”
The US SIF Foundation is a 501(c)(3) organization that undertakes educational and research activities to advance sustainable investing across all asset classes. US SIF members are investment management and advisory firms, mutual fund companies, research firms, financial planners and advisors, broker-dealers, community investing institutions, non-profit associations, foundations and other asset owners.
