ESG Investing Is Missing From Most Retirement Plans

Fifty-nine percent cited long-term risk and return factors as their most important consideration when evaluating a potential investment. Thirty-nine percent said it was diversification.

“Plan sponsors that want to consider incorporating ESG should remember that the concept is rooted in strategy and process, not investment products,” NEPC senior consultant Kelly Regan said in the statement. “Important factors when heading down this path is to start with education, as well as evaluate if ESG is already part of their current investment manager lineup.”

Regan said plan sponsors may find that managers selected for financial reasons also incorporate material ESG factors into their investment process.

The defined benefit and defined contribution plan respondents that said they were not currently interested in ESG cited financial reasons as their rationale. Thirty-eight percent said they considered only financial factors in their portfolios, while 27% said they would need more data on ESG’s impact to performance.

More than eight in 10 of the plan sponsors surveyed that were not including ESG factors today said they had not been asked by defined contribution plan participants to consider incorporating ESG.

“Millennials are emerging as a generation that favors ESG relative to others, so as they become a larger part of DC programs, it’s not unreasonable to expect more requests for ESG-related investment options,” Smith said.

A recent poll showed that well-off younger Americans want to leave a socially responsible legacy.

“However,” Smith added, “there are many additional factors aside from participant demand that need to be considered when contemplating the addition of an ESG investment option to a DC plan — not the least of which is [Employee Retirement Income Security Act] guidance on the topic.”

A recent report said few retirement plans incorporate ESG because of lack of clear guidance from the U.S. Labor Department.