- Investors, including many DC plan participants, have grown increasingly receptive to the idea of sustainable investing in recent years.
- Sustainable investing strategies may offer attractive performance potential and other key benefits for DC plan sponsors and participants alike.
- Before adding such a strategy to their plan’s investment menu, plan sponsors should lay the necessary groundwork and carefully evaluate implementation options.
AS THE SUSTAINABLE INVESTING (SI) UNIVERSE HAS GROWN AND EVOLVED, more investors have begun to embrace this once-niche style of investing. We believe SI is an important feature of today’s investment landscape and should continue to gain traction in the years ahead.
While institutional investors have been employing SI strategies for years, these strategies have yet to catch on in any meaningful way with defined contribution (DC) plans. For example, only 5% of corporate DC plans offer a stand-alone environmental, social, and governance (ESG) integration option on their investment menu.1 The reasons for plan sponsors’ reluctance to include SI strategies in their offerings seem to be a combination of confusion about available options and concern that SI strategies will underperform, potentially putting sponsors in breach of their fiduciary duty.
The reality is that SI strategies are often competitive with traditional investment approaches and may provide a number of benefits for plan sponsors and participants alike. Here we examine the case for SI in DC plans and some implementation considerations for plans that may be new to SI…
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1Source: The Callan DC Index. As of 31 December 2018.