Are ESG options in your 401(k) lineup?
Plan sponsors who are ignoring ESG trends at doing it at their own peril. It’s not just a matter of alienating current plan participants. Sponsors may also be coming up short on their fiduciary responsibilities. Increasingly, offering ESG options in ERISA plans is becoming an obligation, not an option – because sustainable investing makes sound business sense on several levels. Sustainability has moved beyond the confines of niche businesses and purely environmental issues. It now encompasses the social records of companies, more diverse representation on boards, equal pay, and all issues that can pose reputational risk for companies and investment risk for their shareholders.
These trends have been compounded by the transition from defined benefit (DB) to defined contribution (DC) plans that has shifted investment risk to plan participants. For responsible plan sponsors, pressure is on to provide more ways for participants to lower their risk profile. Many of the fastest-growing companies already incorporate ESG values into their corporate mission – but their retirement plan investments may not be keeping up.
In today’s high employment economy, companies have to try harder to attract the best talent; there is a growing emphasis on reflecting corporate/sustainable values in retirement plan investment offerings. As world economics have changed, retirement planning needs to evolve along with it, taking clues from the Millennial generation which represents a growing percentage of the workforce.