Report Projects Growth in Retirement Plans Offering SRI Options

Titled “Opportunities for Sustainable and Responsible Investing in US Defined Contribution Plans,” the report finds 14% of 421 DC plan sponsors responding to the survey already offer one or more SRI options, while an additional 13% of survey respondents either are discussing adding an SRI option or intend to do so in the next two to three years. 

The US SIF Foundation/Mercer report also finds that more than four out of five plan sponsor respondents (84%) — both those that currently offer SRI options and those that do not — predict that demand for SRI options in retirement plans will increase or remain steady over the next five years.  

US SIF CEO Lisa Woll said in a press release, “Today, more and more Americans rely on defined contribution (DC) pension plans for their retirement, and it is clear that SRI options are going to be a bigger part of that picture. Investment flows to DC plans tend to be steady during market downturns, making DC plans an important retirement tool for many workers. The retirement industry regularly analyzes the overall investment composition of DC plan assets; however, plan sponsors and participants have had little concrete information about the availability of sustainable and responsible investing options. This year, the US SIF Foundation determined a new survey was needed to fill in that information gap, particularly given the significant growth in SRI, tumult in the financial markets and changes in the DC retirement industry over the last five years.”

Mercer Principal and U.S. Head of Responsible Investment Craig Metrick said, “Given the large number of plan sponsor respondents who admit to little or no knowledge of SRI products and indices, education is clearly a critical and a significant opportunity. Thus, better awareness of the variety of SRI funds available and the performance and risk characteristics of those funds could help in expanding the SRI market share in DC plans. In addition, since plan sponsors indicate that demand from participants is the leading driver in their decisions as to whether to add SRI options to their plans, ascertaining whether participants are interested in SRI options is also important.”

Key findings in the report include:

•  For those plan sponsors that currently offer SRI options, the primary reasons for doing so are to align their plans with their organizational missions and to meet employee demand.

•  Nearly three in five respondents (58%) say they have minimal or no understanding of SRI investment products and indices.

•  Whether a plan sponsor offers SRI options bears little correlation to the plan’s size, either by value of assets or number of participants. Rather, it appears that SRI options are most likely to exist where the philosophy is aligned with an organization's objectives and culture. SRI options are more likely to be found in the plans of non-profit, mission-based, or public organizations than in corporations.

•  Even though staff and participant demand is cited as one of the primary reasons for adding an SRI fund option, more than 70% of the plan sponsor respondents that do not offer such options say they believe that SRI options have never been requested by participants. (The survey did not ask plan sponsors whether they had a formal way to elicit or track participants’ potential interest in SRI or other options.) 

•  A small subset of respondents say they do not offer SRI options, but have received participant requests for them. These plan sponsors say the primary reason they have not added SRI options—cited by just under one-quarter of the subset—was that the requests from participants have not reached a sufficient level.  Somewhat lesser concerns—cited by under one-fifth of this group—were questions about fiduciary duty and financial performance.

The full US SIF Foundation/Mercer report is available at http://www.ussif.org/resources/pubs/.