Retirement plans are one of the best avenues for funding environmental, social and governance investments, according to Cameron Brandt, director of research at EPFR, an Informa Financial Intelligence business.

But retirement fund managers still don’t know quite how to select ESG firms for the investing options in their retirement accounts, said Ryan Nauman, market strategist at Zephyr, another subsidiary of Informa Financial Intelligence, a consultant for financial institutions that hosted a roundtable discussion of strategists and researchers on Wednesday.

Investments in firms and funds that adhere to ESG standards are becoming more popular in retirement funds, but “managers want to offer participants a reasonable number of options without overwhelming them with choices,” Nauman said. This problem is complicated by the fact that ESG investing means different things to different people, he added.

That is not stopping the managers from “falling all over each other” to offer funds compliant with ESG and socially responsible investing principles, Brandt said. Retirement plans are one of the best places to engage in ESG investing because they are large, stable funds. “You are not going to bring pollution down in less than a decade. You want the funds to be long term,” he said.

The panelists agreed 2021 is a “pivotal year” for ESG investing.

“Pressure is on companies to meet ESG standards as countries set new goals on these issues,” noted Michelle Kwek, head of research for Asia at Informa Global Markets. “Investors appreciate these efforts because it makes more ESG funds available.”

Investors are also coming to appreciate the lower risks presented by many ESG-conscious firms, Nauman said. “Companies that are ESG compliant are usually companies that are managed well. Their investments perform better whether you are judging on a risk-adjusted basis or on absolute performance.”

ESG investments demand more active management. “A lot of the money in ESG investing is coming from baby boomers who want downside protection, and ESG funds have another level of due diligence that provides more information,” Brandt said. Separately managed accounts for ESG investing will become more popular because the investments are more transparent and can be customized to the individual investor’s goals, Nauman added.

If inflation persists it will not be good for ESG investments. “ESG does not do as well when the price of capital is high,” Brandt added. If standard definitions could be developed for what constitutes ESG and SRI investing, it would provide another boost for this type of investing, but all three panelists agreed the standards would have to be set for different regions to allow for differences in the way countries are developing.

More due diligence is also needed for the way money is used when it is raised through “green bonds,” Kwek warned. The projects funded through these securities usually fall on a continuum of how “green” the projects actually turn out to be, but investors need transparency to know if their money is accomplishing the intended purpose, the panelists said.