Few 401(k) plan participants have had an easy time parking retirement dollars in socially responsible investments. Fear of sacrificing performance and lack of information have steered many away, and most 401(k) plans don't even offer SRI options. Now a New York-based co-fiduciary retirement plan consulting firm is trying hard to remove these roadblocks.

RLP Capital Inc. recently launched a socially responsible rating system solution, The Green 401k, to help promote and advance the use of socially responsible investments in mainstream 401(k) plans. It's now screening about 450 mutual funds for environmental, social and governance (ESG) criteria. Nearly three dozen factors are examined, including human rights, ESG disclosure and reporting, use of clean/renewable energy, and shareholder advocacy.

Investments are placed on a spectrum ranging from Not Socially Responsible/Traditional Investment (those that don't employ any SRI practices) to Exceptionally Socially Responsible (those demonstrating a high level of SRI practices and policies). RLP Capital signs on as co-fiduciary for all clients.

"You can't put a bunch of socially responsible funds into a lineup and call it a day," says Bud Sturmak, CFP, managing director of RLP Capital. Instead, his solution, an extension of what his firm already does as a fiduciary, gives plan sponsors and participants a high degree of transparency for all kinds of funds, he says.

Sturmak, who lives and works "green," started looking at SRI five years ago. He and RLP Capital president and managing partner Jeremy Paul stepped up internal research and analysis efforts last year after seeing studies which suggested that certain funds committed to social responsibility or sustainability have outperformed traditional investments in recent years. Details of two studies (by Statman/Glushkov and A.T. Kearney) are posted on their solar-powered Web site (www.thegreen401k.com).

"Not every socially responsible fund was outperforming, but we came to our own conclusion that managers who were seeking to invest in companies that exhibited strong ESG practices were outperforming their peers," says Sturmak.

Data released earlier this year by the Social Investment Forum (SIF) showing that 65% of socially responsible mutual funds outperformed their benchmarks in 2009 should also dispel the myth that socially responsible investors must give up performance, he says.

Although Sturmak knows SRI won't resonate with all investors, he thinks many will want to save for retirement by investing in companies making a positive difference in the world if they can do so without sacrificing return. "As with traditional investing, we believe that identifying the most talented managers is a key to successful investing in the socially responsible arena," he adds.

Sturmak and Paul bounced their thoughts off SRI experts including Parnassus Investments, an SRI leader with six mutual funds and $4 billion of assets under management. "We tried to get their opinion if what we said made sense and if there was a place for it," says Sturmak. The feedback was positive.

"They're thought leaders in this space," says Grant Cleghorn, Parnassus' director of institutional sales and marketing. "The green tsunami is coming; we're still on the early front of this ... We've seen institutional  plan sponsors almost struggling to find (SRI) solutions; their participants are asking for responsible solutions." Performance is key. "Investors aren't just investing in companies because it's a feel good story," he says.

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.