Art by Lars Leetaru
While environmental, social and governance (ESG) investment
options may not be very common among retirement plans in general, they are growing
more prevalent among large and mega plans. Because trends that begin at the
large end of the market tend to move downstream—and also because of keen
interest in ESG among Millennials, Generation X and women—experts expect demand
to increase, leading more sponsors to offer these types of investment options
in the years to come.
The 2016 PLANSPONSOR Defined Contribution (DC) Survey found
that among plans of all sizes, only 11.8% offer socially responsible funds.
Among micro plans, it is a mere 9.0%. However, the percentage spikes to 15.1%
among both large and mega plans. Keith Clark, a partner at DWC ERISA [Employee
Retirement Income Security Act] Consultants in St. Paul, Minnesota, thinks the
reason large plans offer ESG funds is because they are “feeling the ESG heat at
the corporate level, even before it is raised as a possibility for their 401(k)
For plan sponsors interested in such an investment
direction, but unclear how to integrate the considerations into their due
Department of Labor (DOL) Interpretive Bulletin (IB) 2015-01
was a welcome resource. According to Nicole Crum, a partner in the investment
management group at Sullivan & Worcester LLP in Washington, D.C., the
document says, “ESG factors may have a direct relationship to the economic and
financial value of an investment, as long as its performance is on par with
This guidance helped convince Natixis Global Asset
Management to file a registration statement with the Securities and Exchange
Commission (SEC) this past December to launch the industry’s first ESG-oriented
target-date funds (TDFs): the Natixis Sustainable Future Funds. Because surveys
Natixis has conducted indicate that over 70% of people of all ages are
interested in ESG investing, Ed Farrington, Natixis executive vice president of
retirement, expects more SRI and ESG funds to find their way onto retirement
plan lineups in the coming years. “The conversation [about] ESG is an important
one for advisers and plan sponsors,” he says.
Certainly, in the investment community at large, ESG and
socially responsible investing (SRI) are growing at a significant rate,
according to US SIF: The Forum for Sustainable and Responsible Investment.
U.S.-domiciled assets under management (AUM) had grown to $8.72 trillion at the
start of 2016, a 33% increase since 2013. Today, ESG investments account for
one out of every five dollars under professional management in the U.S.
Chartered financial analysts (CFAs) have been trained in ESG
investing since 2009, notes Matt Orsagh, director of capital markets policy at
the CFA Institute in Charlottesville, Virginia. “The 200,000 people around the
world who have taken the CFA exams have all gotten the same message about the
importance of ESG,” he observes.