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.