Making Portfolios Personal

A new survey offers some key insights into why plan sponsors may want to consider building an investment lineup to meet the growing demand for sustainable options from workplace retirement plan participants. Most notably, nearly three-quarters (74%) of retirement plan participants said they would increase their contribution rate if offered sustainable investments, compared to 69% in 2021, according to the Schroders 2022 U.S. Retirement Survey.¹ Survey respondents said they want their investments to be aligned with their values (87%), and they see environmental, social and governance (ESG) investments as a driver of performance (78%). 

In addition, of the 31% of 401(k) plan participants who have ESG options in their plan, 90% invested in those options and 73% estimate allocating 50% or more of their assets to sustainable investments. The survey also revealed where participants want to make an impact. Although ESG is typically associated with issues such as climate action and product integrity, the survey found that the top ESG issues for U.S. investors are actually social in nature—focused on workers and communities. When asked which ESG segments they would like their investments to make an impact on, plan participants that currently invest in ESG, or would if they had the option, said:

• Employee welfare/living wage: 51%
• Climate change/global warming/carbon reduction: 39%
• Human rights: 36%
• Biodiversity (pollution, deforestation, clean water): 30%
• Diversity and inclusion: 22%
• No specific area: 17%.

Guidance for Plan Sponsors and Advisors

The Schroders survey also offers this general guidance for plan sponsors and their advisors:

• Plan sponsors that are considering adding ESG options must adhere to the same rigorous fiduciary investment selection and monitoring process.
• Any ESG funds included must be based on their economic rationale; engaging with an ESG plan expert may help expedite the process.
• Plan sponsors and advisors will also have to plan for a comprehensive campaign to educate participants on ESG investing.
• If the plan sponsor selects an investment for the plan based on its ESG attributes, it will need investment managers to provide sufficient data to demonstrate how the fund is promoting ESG and meeting its stated objectives and guidelines.
• Once the plan sponsor has a clear understanding of its goals in making ESG options part of the plan offering, an important next step is to ensure the investment policy statement reflects those goals.

For supplemental guidance and information, check out the Defined Contribution Institutional Investment Association white paper, “Incorporating ESG in DC Plans: A Resource for Plan Sponsors.”²

¹ https://www.schroders.com/en/us/defined-contribution/dc/retirement-survey-2022/

² https://tinyurl.com/2p9y93wh

For plan sponsor use only, not for use with participants or the general public. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.

Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; www.kmotion.com

©2022 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance; nor as the sole authority on any regulation, law or ruling as it applies to a specific plan or situation. Plan sponsors should consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.