Guide Offers Tips for Including Sustainable Investments in DC Plans

A US SIF resource provides practical tips and suggestions.

The US SIF Foundation released a resource for plan sponsors, “Adding Sustainable and Responsible Investing Options to Defined Contribution Plans.”

The five-step guide assists plan sponsors considering the addition of a sustainable and responsible investment (SRI) option to their defined contribution (DC) retirement plans. Along with practical tips and suggestions, the guide provides links to additional resources plan sponsors can leverage.

A 2011 joint study by the US SIF Foundation and Mercer found that the number of defined contribution plans in the U.S. offering an SRI choice was expected to double in the following two to three years.

“We created this report to assist plan sponsors in meeting the demand for sustainable and responsible investment options. Additionally, plan sponsors are aware that recent ERISA [Employee Retirement Income Security Act] guidance changes clarified their ability to offer such [investments]. We believe that private-sector plan sponsors may be looking for ways to better engage their Millennial employees and others who want their investments to reflect their concerns and priorities,” says Lisa Woll, CEO of US SIF.

Millennials are almost universally interested (90%) in pursuing sustainable investments as part of their 401(k)s, according to a study by the Morgan Stanley Institute for Sustainable Investing.

Previous US SIF Foundation research has revealed several reasons for the lack of uptake among plan sponsors. These include plan sponsors’ lack of knowledge about performance and about the SRI options available. For some plan sponsors, there may be structural barriers if they are part of third-party platforms where the universe of funds is limited.

With a growing body of data indicating that companies with strong environmental, social and governance (ESG) standards have stronger financial performance, as well as the competitive financial performance of SRI funds, defined contribution plans are well placed to enter this marketplace. Additionally, US SIF says plans can build on the 2015 ERISA guidance which clearly enables fiduciaries to consider ESG factors as part of their investment analysis.

US SIF’s guide is here.