SURVEY SAYS: Socially Conscious Investing

Investing in products based on environmental, social and governance (ESG) factors has been called socially responsible investing, sustainable investing and, most recently coined by the Department of Labor (DOL), economically targeted investing (ETI). 

Last week, I asked NewsDash readers, “Do you wish to invest in socially conscious investments, and would you rather do so independently or within your employer-sponsored retirement plan? How do you feel in general about retirement plans using ESG screening for investments?”

Seventy-seven percent of respondents work in a plan sponsor role, 19.2% are third-party administrators (TPAs)/recordkeepers/investment managers, and 3.8% are attorneys.

Half of responding readers indicated they do not want to invest in socially conscious investments, 42.9% do, and 7.1% don’t know.

Asked whether they would rather invest in socially conscious investments independently or in their employer-sponsored retirement plan, 33.3% said independently, 3.7% said in their retirement plan, and 26% said both. More than 7% indicated they would invest in socially conscious investments either independently or in a retirement plan, and 29.6% said neither.

No respondents reported that their company’s defined contribution (DC) plan offers socially conscious investment options, while the vast majority (96.4%) said their DC plan does not, and 3.6% said they don’t know.

Eighty-five percent reported their defined benefit (DB) plan does not use ESG screening for investments, and 15% said they don’t know.

Twenty-six percent of responding readers said they feel in general that retirement plans using ESG screening for investments is a good idea. However, 51.8% said they think it’s a bad idea. Fifteen percent have no opinion, and 7.4% said they don’t know.

Readers who left comments were split on whether using ESG screening in retirement plans is a good thing. Several pointed out that socially conscious investments may mean something different for different people. The Editor’s Choice goes to the reader who said, “Retirement plans’ first responsibility is to produce returns or supply investment options that are in the financial best interests of the plan participants. If they happen to be socially responsible, so much the better.”

Verbatim 

Socially conscious investing is good thing, but I'm unsure how the decision would be made as to which socially conscious fund to place in a retirement plan. Socially conscious can mean different things to different people.

It's like anything else ... he who has the most at retirement ... retires. If it makes money ... invest. If it doesn't … don't.

First of all, my idea about what is socially responsible may vary from my co-worker, and both may vary from the idea of it as deemed by the powers that make the choices or even run the funds. Secondly, I don't want anyone to be steered into making an investment without real knowledge simply because they think the fund is cool or socially responsible. I want people, especially younger ones, to make investment decisions about business investments in their 401(k) plan that will help them in retirement.

Ugh! That’s all we need is another reason for a tree-hugger or non-tree hugger to sue a plan. Paraphrasing Mr. Spock: the needs of the many outweigh the wants of the few. To all these a-b-c outlanders, we should say: WTH - do you want to be right or happy. But, let me tell you how I really feel.

So long as companies are complying with applicable laws, then they should be considered for investment. What’s “socially conscious” is often unclear and may change depending on context. Investment decisions are a very unwieldy instrument to try to effect social change.

Retirement plans’ first responsibility is to produce returns or supply investment options that are in the financial best interests of the plan participants. If they happen to be socially responsible, so much the better, although you may not get participants’ agreement about what is or is not a socially conscious investment. Participants are free to invest in socially conscious companies or funds outside of their retirement plans, and may also support these firms by buying their products.

Verbatim (cont.) 

SRI may present too many headaches for DC plan sponsors. Not sure that long-term returns from SRI investments will compete with returns from investing in the total market.

So many plan participants are uninformed about standard investing concepts that I tend to favor fewer in plan choices.

Only a good idea if there is: 1) a broad base of other, similar investment options; 2) a higher-than-average amount of screening on this fund; and 3) a very clear communications piece stating that the purpose of the fund’s inclusion is to offer an ESG option.

I support the choice everyone has to invest their money where they want, I don’t believe it should be a criteria to choose investment in retirement plans. The wombats clamoring for SCI will be the same ones we need to subsidize in their retirement because the 401(k) plan “failed” them by giving them below average returns on their investments.

Everyone has different societal concerns. I don’t want to be forced to screen by one person’s or one group’s definitions.

Any additional incentive to get people to save!

I strongly believe it should be an option in retirement plans. For many people, it is their only investment vehicle.

Early in my career, my employer offered a socially conscious investment option. At that time as a K-12 Education system, the employer paid little attention to the investment options. All of that has changed since the 1/1/2009 IRS [Internal Revenue Service] Regulations went into effect. As a young person, I invested in the socially conscious investment option. It made me feel good, but it was not a sound financial investment.

Actually, I think it’s a really stupid idea. Investing is about the head, not the heart. And if you want to invest with your heart, then please just do it with your own personal money. One man’s ESG is another’s OMG.