DC Plans and Health Care Employers First Movers into ESG Investing

Of the 12% of institutional investor respondents to a recent survey who have incorporated ESG, most are DC plans, and more than half are healthcare-focused organizations.

Investment consulting firm NEPC has published the results of its latest survey of corporate defined benefit (DB) and defined contribution (DC) plan sponsors, this one focused on the use of and attitude toward environmental, social and governance (ESG) investing.

As the results show, the majority (88%) of plan sponsors have not incorporated ESG into their DB or DC plans. Of the 12% of respondents who have incorporated ESG, most (70%) are DC plans, and more than half (62%) are healthcare-focused organizations.

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Brad Smith, partner in NEPC’s Corporate Practice, points out that nearly a third of respondents suggest they have not yet implemented ESG investments but are interested in doing so in the future.

“The survey findings solidify our belief that institutional investors can capitalize on opportunities created by ESG as long as it makes sense for them,” Smith says.

Smith further suggests one reason DC plans are outpacing DB plans in terms of ESG adoption has to do with a difference in pressing priorities, rather than doubts among DB plans of the viability or usefulness of ESG.

“Right now, for example, a big focus for DB plans is closing funding gaps, and while ESG may reduce risk over time, these plan sponsors often prioritize purely financial factors versus sustainability to drive excess returns,” he explains. “On the contrary, it was not surprising to see healthcare adopting ESG at higher rate than its corporate peers, given the nature of the industry and the fact that many of these organizations are mission-driven or faith-based.”

NEPC’s data shows many healthcare organizations have historically included ESG or socially responsible investment (SRI) option within their DC plan, which is the primary reason why the survey findings show more ESG adoption by DC plans than other plan types.

According to NEPC, the vast majority (94%) of the DB plans surveyed are not incorporating ESG today. Among this group, more than half (59%) state long-term risk and return factors are their most important consideration when evaluating a potential investment, followed by diversification (39%).

“Plan sponsors that want to consider incorporating ESG should remember that the concept is rooted in strategy and process, not investment products,” comments Kelly Regan, senior consultant at NEPC. “Incorporating ESG is a journey with a variety of implementation approaches, and interested parties should explore the best course of action to meet their specific goals and objectives.”

The NEPC experts suggest institutional investors that are considering ESG should start with education, as well as evaluation of whether or not ESG is already part of their current investment manager lineup.

“Plan sponsors may be surprised to find that managers who were selected for financial reasons also incorporate material ESG factors into their investment process,” Regan notes.

Notably, the majority (84%) of the plan sponsors surveyed that are not including ESG factors today said they haven’t been asked by DC 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 concludes. “However, 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 ERISA guidance on the topic.”

The Most Successful Advisers Are Tech Innovators

They are also harnessing the competitive edge of AI.

The most successful registered investment advisers (RIAs) and fee-based advisers have many traits in common, according to the Advisor Authority Study, commissioned by Nationwide Advisory Solutions.

“The most successful RIAs and fee-based advisers, who earn more and manage more AUM [assets under management], are already a step ahead by putting clients first with a fiduciary standard and more holistic planning, and they further differentiate themselves by harnessing prevailing trends—from artificial intelligence to demographic shifts to industry consolidation—to create their own competitive advantage,” says Craig Hawley, head of Nationwide Advisory Solutions. “To keep pace, all advisers must adapt, or be left behind.”

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Nationwide defines the most successful advisers as those earning $500,000 or more or who have AUM of $250 million or more. The company found a series of similar traits distinguish these advisers. Notably, they are tech innovators. These advisers rate technology as the second most important factor for driving profitability over the next 12 months.

They are harnessing the competitive advantage of artificial intelligence (AI) to transform every aspect of the customer experience, including offering a new universe of products. They align with their clients’ best interest, thereby deepening their relationships with them and attracting more assets. Successful advisers also define their ideal client and what their top concerns are in order to customize their practice to meet these needs.

Finally, they are marketing innovators. This year, successful advisers say increased use of mobile technology is their top solution to attract the next generation of investors (33%), followed by increased use of social media (30%) and working with clients’ families and children (28%).

The Harris Poll conducted the online survey for Nationwide Advisory Solutions among 972 advisers and 827 investors this past January and February.

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