Only 14% of defined contribution retirement plans offer a socially responsible investing option for participants, but another 13% may add it and a vast majority (84%) of plan sponsors think demand will increase or at least hold steady, according to a survey by the US SIF Foundation.
Socially responsible, or sustainable, investing increased by 13% between 2007 and 2010, a time when market indexes such as the S&P 500 declined and the broader universe of professionally managed assets increased less than 1%.
The survey of sustainable and responsible investing was conducted for the US SIF Foundation to determine the participation of defined contribution plan sponsors in socially responsible investing and included responses from 412 plan sponsors. The US SIF Foundation undertakes educational,research and programmatic activities to advance the mission of US SIF, formerly the Social Investment Forum (SIF), the U.S. membership association for professionals, firms, institutions and organizations engaged in SRI.
SRI involves a number of types of investing that take into account environmental, social and governance (ESG) issues. More than 12% of investment assets under professional management, or $3.07 trillion out of $25.2 trillion, are held by individuals, institutions, investment companies or money managers that take into account ESG issues or community investing.Those sponsors that don't have an SRI option in their defined contribution plans say that's because not enough participants have asked for it (24%) or because of fiduciary concerns (18%). Another 48% of plan sponsors say they have only a minimal understanding of what SRI involves.
At the same time, those that added an SRI option did so because of requests from participants (23%) or because the SRI goals aligned with the mission of the plan (28%).
Of those that do offer an SRI option, 77% offer only one and 23% offer two or more. The vast majority of the options provided are mutual funds with 66% being equity and 23% being balanced funds.
For those offering an SRI option, fees, risk and past performance are the most important factors in selecting a fund but ESG factors are still important or very important to 85% of the sponsors.
"Certain types of organizations may see growth in SRI because of their mission, commitment to sustainability, or because they employ a workforce with beliefs aligned with the tenets of SRI," the survey concludes. "In addition, the prominence of ESG investment issues in the news is likely to be a driver."
"It is clear that the defined contribution market is an area where the sustainable and responsible investment industry should focus its efforts in order to enhance knowledge and drive demand," the survey says.