There, in the Company's 401-K Plan - Do You Have the Choice of ESG Investments? Ah, That Would Have Been Good for You to Have in the Recent Market Downturn...

There, in the Company's 401-K Plan - Do You Have the Choice of ESG Investments? Ah, That Would Have Been Good for You to Have in the Recent Market Downturn...

As many more institutional investors (asset owners, outside managers) move into ESG / sustainable investing instruments and asset classes, the question may be asked: What about the individual investor…the family huddling to discuss what to do in the midst of the virus crisis?  Are they offered “resilient choices” to stash their future funds? Bloomberg Green provides some answers in “ESG Funds Are Ready for Your Retirement Plan”.

Emily Chasan, in our view one of the top sustainability editors in the nation today, explores the impact (or lack of) on individual / family investors in mutual funds and ETFs aiming to better protect their nest egg for the future. 

For starters, fortunately, some ESG mutual fund management (advisory) companies may have not set out to protect their investors in an unforeseen global pandemic…but…the ESG funds they manage are proving to be quite resilient during the recent market collapse. These would seem to be good choices for individuals.  But the opportunity to partake is missing.

Fund managers, she explains, avoided risk (deliberately) by using corporate ESG scores as an important proxy for assembling their roster of well-managed, adaptable, investable companies…such as those companies with far-sighted executives who were planning for an existential climate shock. That planning paid off in the pandemic crisis.

Prioritized by leading asset managers for their [ESG} funds:  tech, financial services and healthcare equities, and renewable energy companies. For demonstration of concept, Allianz, BlackRock, Invesco and Morningstar found their ESG investments were performing better than the more traditional investment vehicles in the dark market days of early 2020.

And, a BlackRock study found that more than three-quarters of sustainable indexes outperformed better than the traditional investor benchmarks from 2015 to the market drop in 2020. (How about this for proof of concept:  94% of sustainable indexes outperformed!)

Speaking at a World Business Council for Sustainable Development (WBCSD) conference, BlackRock’s director of retirement investment strategy, Stacey Tovrov, explained:  “Sustainable Investment can provide that resilience amid uncertainty [when we really want to ensure we’re mitigating downside for retirement savers]’”.

So how come, asks Bloomberg Green, why are ESG funds largely missing from a US$9 million “chunk of the market, comprised of corporate retirement plans”? 

In the USA, retirement accounts represented one-third of all household wealth going into the market downturn (investment in the family home is larger). But only 3% of 401-k plans offered ESG funds.  And less than 1% of these funds are invested in ESG vehicles.

Perhaps the fiduciaries (the employer with the retirement plan, the outside investment advisors hired on to manage the plan) are just too cautious, too concerned that ESG investing will in some way negatively impact them.  So, we can say, these results should (operative word!) convince corporate retirement managers overseeing 401-k plans that the individual investor is actually being negatively impacted by being absent from the ESG choices, the opportunities offered by ESG / sustainable investing approaches that many institutions enjoy.

As “Human Capital Management” steadily becomes an important aspect of board and C-suite strategy, oversight, measurement and management (and results), Emily Chasan suggests that the virus crisis will reshape the fundamental relationship between employers and their workforce. 

Re-structuring the retirement plan offerings is a good place for C-suite to start re-examining the why, what and how of offerings in their sponsored plans.  “One place to start changing attitudes might just be offering workers the chance of a more resilient retirement,” Emily Chasan tells us. 

For corporate executives and managers seeking more information about this we recommend our trade association’s web site.  Numerous members of the U.S. Forum for Sustainable and Responsible Investment (US SIF) offer mutual funds, ETFs, separate accounts, and other investment opportunities. There’s information on Climate Change and Retirement on the website. See: https://www.ussif.org/

We also offer a selection of ESG / Sustainable & Responsible Investment items for you this issue.

This is just the introduction of G&A's Sustainability Highlights newsletter this week. Click here to view the full issue.