A look at the different paths to ESG integration in DC plans

“On one hand, you’re a fiduciary for the pension plans, and investment returns are really representing the majority of the participants’ accumulated assets over time, so care must be taken as you think about the investment lineup.”

On the other hand, a growing group wants their employers to be considering how to encourage companies to behave responsibly and sustainably, she added.

Generally, the industry is discussing two approaches to sustainability: creating products that are labelled as ESG and ensuring ESG factors are integrated into existing investment management processes.

The former approach involves adding new products to investment lineups and screening out particular sectors or companies, said Girvan, but this can be complex as members have diverse values. However, the latter approach enables plan sponsors to be aligned with plan members’ different beliefs.

There’s a simple framework for how ESG is being integrated into an investment manager’s approach. Typically, the two components of sustainable investing are the investment research piece and proxy voting, she noted.“Many active managers will say these are factors they would have considered all along their approach. I would say that, generally, this is true. I think what has changed a lot — and is why we’re having these conversations today — is that the availability of information on the [ESG factors] has increased.”

Girvan suggested employers educate their committees on different approaches to sustainable investing, including a conversation about product versus process. “Choose a path towards the implementation that aligns with your organization and with your employee goals.”