Investing responsibly within a retirement plan is important to participants. Our research shows that plan sponsors who meet this demand and offer responsible investing (RI) choices will gain advantages in employee satisfaction and loyalty.

With robust participant interest in RI, advisors now have a significant opportunity to help sponsors think through critical considerations, including sponsors’ and participants’ key RI goals and, most importantly, how to identify a manager well positioned to provide investments that match those goals and make for a valued RI offering.

Investors Care About RI
Investors are well attuned to the RI case and its financial benefits: according to Nuveen’s 7th annual Responsible Investing Survey, two in three investors believe that RI can help mitigate portfolio market risk, and 41% of current and former RI investors say they think that investing responsibly will lead to better performance.

Investors are also making their affinity for RI known in terms that speak directly to sponsor interests: 69% say having RI options in their plan makes them feel good about working for an employer and 60% say being able to invest responsibly makes them more loyal to their employer.

Incorporating RI into a workplace plan seems to support plan engagement as well: 64% of investors say that RI options make them feel better about contributing to their plan.

Yet, many sponsors still aren’t realizing these advantages: about one in four investors (27%) say their plan doesn’t offer RI choices.

Having A Valued RI Conversation With A Sponsor
If your sponsor client’s plan committee isn’t already getting guidance on this topic, it’s a conversation worth initiating. But regardless of how the conversation starts, here are three key tips:

1. Correct misconceptions: Today, views of RI have become somewhat polarized in ways that can obscure the approach’s true goals; you’ll need to reinforce the primacy of the investment objectives behind RI and management of ESG (environmental, social, governance) factors—namely, mitigating risk, uncovering opportunity and improving long-term returns.

2. Stay engaged: Getting your client on the right path likely will be an extended and detailed process, and much more than simply presenting a menu of investment options; you’ll need to stay deeply involved in a consultative role throughout the process.

3. Be an educator: Awareness of RI is growing, but knowledge gaps still exist in the marketplace; you’ll need to be ready to respond authoritatively to a broad range of questions.

Finding The Right Investment Manager
Among your support’s most valued features will be guiding your client on the choice of the right RI investment manager. The critical issues include:

• Clients’ unique goals: Clients will bring to the table varying desired outcomes and key values (some based on participant attitudes) and will be seeking appropriately aligned returns; once you’ve helped your client identify and articulate those goals, you will need to select a  manager that can satisfy key return expectations.

• The manager’s qualifications: Does a manager have the tenure, adaptability, resources, scale and market presence to manage ESG assets effectively in all markets? (A long track record can provide clues.)

• The manager’s operations and management: Are they consistent with the manager’s own RI thesis in such areas as visible commitments to transparency, accountability, sustainability, diversity, equity and inclusion? Firms with operations that mirror investing processes can have deeper conviction and superior outcomes. Alternatively, is the manager just selling products?

• Alignment of the manager’s ESG strategies and client goals: How does the manager integrate ESG factors into the investment process? Are they searching for ESG leaders and companies best managing ESG risks? Or are they just utilizing exclusionary screens?

• The fit within the overall plan menu: Does the manager offer a breadth of strategies that complement each other from an overall balanced portfolio perspective?

RI: NO Flash In The Pan
RI is building momentum. Bloomberg Intelligence forecasts that global ESG assets will exceed $50 trillion by 2025, representing more than one-third of projected total assets under management. Market evidence indicates too that RI, by incorporating numerous additional factors into investment decision-making, can indeed improve long-terms returns—and meet fiduciary responsibilities. As one example, the MSCI KLD 400 Social Index, comprising companies with outstanding ESG ratings, has outperformed the broader MSCI USA IMI equity index across a range of recent time periods going back to 2009.

As RI becomes even more firmly entrenched in the investing mainstream, it will increasingly be seen as “table stakes” for state-of-the-art retirement plan menus. There is powerful reason now to take steps that position your plan sponsor clients to build RI into their plans and show your commitment to keeping clients in the forefront of great retirement plan design.   

Brendan McCarthy is head of retirement investing at Nuveen, the global asset manager of TIAA.