During a PLANSPONSOR webcast, John Hale, portfolio construction adviser of the ESG Managers Portfolios for Morningstar Associates, explored the background and interest behind sustainable investing.
According to Hale, sustainable investing integrates environmental, social and governance (ESG) factors into investment analysis and decision-making.
In the past, Hale said, sustainable investing, also known as socially responsible investing (SRI), was an investment concept that was values based. During the 1970s investors who wanted their portfolios lined up with social values found SRI important. SRI was primarily dominated by nonprofits and religious institutions.
According to Hale, plan sponsors are interested in sustainable investing because they want to better align their retirement plans with their organizational mission. They also want to provide their plan participants with more choices.
Hale said that larger plans in particular have developed sustainable investing initiatives.
Hale cited a survey from Mercer that found 84% of plan sponsors believe that the demand for sustainable and socially responsible investing options will grow in the next four years. The report also found that 14% of the 400 companies surveyed offer one or more sustainable investment options. An additional 13% said they were considering or were planning to add one sustainable investing option within two to three years.
Hale also said that 58% of plan sponsors said they have little understanding of sustainable investing. Therefore, there is a need for plan sponsor education on the investment option, as well as whether this type of investing is right for their plan.