Nearly nine in 10 (88%) of U.S. investment consultants-those people advising foundations and pension funds and developing 401(k) plans for corporate clients -surveyed in late 2009 by the SIF and Pensions & Investments believe client interest in ESG will grow over the next three years. None of them think it'll decrease.
The percentage of U.S. defined contribution (DC) plan sponsors offering an SRI option was 19% in 2007 and expected to climb another 41% by 2010, according to the most recent survey conducted by Mercer Investment Consulting for the SIF in 2007.
Although the downturn has created more pressing issues for plan sponsors and delayed that 60% projected market penetration, Craig Metrick, principal and U.S. head of Responsible Investment for Mercer, says he's hearing more talk about SRI. "The interest isn't always to add green," he says-some plans are taking a more comprehensive approach and looking at ESG across their current plan lineup.
Plan sponsors have much catching up to do: 71% of respondents to Mercer's recent global survey of DC retirement plans that have a global corporate social responsibility (CSR) strategy haven't considered actively reflecting this strategy in the management of their DC plans. Many aren't even aware that their companies have CSR strategies, the survey found.
One 401(k) plan sponsor committed to responsibility is the American Federation of Television & Radio Artists. "As staff who work for a union, we already have the proclivity to think in a socially responsible way," says Eileen Willenborg, senior advisor to the AFTRA local in Chicago and a member of AFTRA's 401(k) investment committee.
AFTRA has offered SRI options for at least eight years. Willenborg began reviewing all its funds more closely for ESG a couple years back after reading about U.S. funds invested in companies doing business with the Sudan and other genocidal nations. AFTRA's 12-fund plan offers two responsible funds and may add two more when it meets with advisor RLP Capital in May. Currently 192 of 245 eligible employees participate; staff attends annual plan education meetings.
"We all want to avoid the 'villains' when we make investment decisions," says Willenborg, The Green 401k will help AFTRA take things further. "It's a much broader analysis that's very valuable."
RLP Capital has only screened funds that have responded to its ESG questionnaire (about 90%). "Otherwise, we feel like there is nothing to substantiate our findings if the mutual fund company is not signing off on it," says Sturmak. "If a fund refuses to complete a questionnaire, it can pique our curiosity."
How does Social(k), a socially responsible retirement platform, differ from his solution? Unlike The Green 401k, it's open to other financial advisors; more than 500 are registered nationally. Sturmak says his solution serves larger plans-those with 100-plus participants. "We complement what they do very well," he says.
"I think this is just the tip of the iceberg. I think we'll see other consulting firms evolve and incorporate this kind of (socially responsible) rating," says Cleghorn.