While the pension industry is interested in environmental, social and governance factors, that isn’t translating into action when it comes to incorporating ESG funds into defined contribution plans’ investment options, according to a new report by Cerulli Associates.
The report found, ESG-oriented investment options aren’t becoming too popular in the U.S. for three key reasons: fee sensitivity, regulatory issues and the idea that ESG adoption means a trade off in returns.
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“We looked at the end investor perspective and the plan sponsor perspective,” says Dan Cook, a research analyst specializing in retirement at Cerulli Associates. “Both those groups are definitely supportive of ESG in concept, but when it comes to implementation of ESG-oriented funds within a 401(k) plan investment lineup, and then to take it a step further — are end investors actually putting their money in those funds? — the implementation and the action don’t match up with actual demand.”
More than half (56 per cent) of 401(k) plan members surveyed agreed with the statement: “I prefer to invest in companies that are environmentally and socially responsible.”
More (63 per cent) plan members below age 39 said they’d prefer ESG-oriented investments in their plans than those between ages 40 and 49 (54 per cent), between 50 and 59 (52 per cent) and between 60 and 69 (37 per cent). However, only 16 per cent of plan members identified environmental and social responsibility as an important consideration when selecting plan investments.
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Female investors also have a more favourable opinion of ESG, according to the report. Nearly two-thirds said they prefer to invest in companies that are environmentally and socially responsible, compared to just about half of men.
“I think there’s quite a bit of discussion going on in the industry, but when it comes to money going into those funds, that doesn’t necessarily match up with the discussions,” says Cook.