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Socially Responsible Investments in Retirement Plans

May 04, 2021

Making Sense of ESG 

Social responsibility is integral to your organization’s mission. But what about financial responsibility? As organizations strive to balance the desire to do good with the need to perform well, they’re starting to take a closer look at their retirement investment planning — specifically at the types of funds they’re investing in. 


Part of an overall strategy around sustainable investment, ESG (environmental, social and governance) funds are grabbing the attention of more organizations looking to extend their mission into their benefits packages. ESG policies allow employees to invest in funds that support sustainable and socially responsible activities, such as clean air, alternative energy, equity, inclusion, housing stability, education, voting rights, and a host of other initiativesThe idea being that you can have a positive impact while seeing a positive return. 


The Growth of ESG Investing 


There’s a growing appeal around this type of investment, especially among young investors. Over a 12-month period, ESG funds have experienced a massive boom— propelled in large part by a burgeoning younger population that places a priority on social engagement. This demographic shift is shaping the retirement investment strategies of organizations as well. By 2025, Millennials will comprise around 75% of the workforce. So any planning around benefits — including retirement benefits  — will need to reflect and respond to the needswants and priorities of this age group. 


More than an opportunity to do good, ESG investments have also showgood returns for Retirements Plans and their benefactors. A recent report by Morningstar1 showed that ESG funds in the U.S. performed better than conventional funds in 2019, and have done so consistently over the last decade. 


Sustainability Isn’t Always Simple 


Given that, you might be asking “So where do I sign up?” Not so fast. ESG funds have the potential to perform well, but they also come with added complexities. You’ll need to choose which type of ESG investments you want to include in your Retirement Plan: stand-alone ESG funds, balanced funds, or managed accounts that include ESG investments. You may even find that your current funds are already supporting ESG investments, but don’t advertise it. Whichever ESG funds you do select, you’ll also want to look closely at the available data to make sure the ones you add are more likely to perform well.  


Adding another layer of complexity, the Department of Labor (DOL) has been issuing ever-changing restrictions and guidance around ESG investing for Retirement Plans. Staying on top of these changes can be challenging for organizations who are busy focusing on their own missions and daily operations. 


Adding ESG funds to your Retirement Plan investment mix requires robust processes, documentation and research to ensure you’re making not just a socially responsible decision, but also a financially responsible one. Fortunately, there are experts out there who specialize in ESG investments, and who can help you understand your options, navigate the complexities, and make an informed decision that benefits your people as well as the planet. 


You’ll find a number of those experts at StoneKimbro. If you’re considering adding ESG investments to your organization’s retirement fund line-up, contact us today.