Sustainable investing comes of age for DC plans

Relatively few DC plan sponsors offer sustainable investing (SI) options on their plan’s investment menu. That is unfortunate, because SI strategies can provide compelling benefits for plan sponsors and participants alike. Our Director of Defined Contribution Jed Petty makes the case.

Views expressed are those of the author and are subject to change. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. Your capital may be at risk. Please refer to any investment risks noted at the end of the content.

KEY POINTS

  • 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…

To read more, please click the download link below.

1Source: The Callan DC Index. As of 31 December 2018.

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