PLANSPONSOR - August/September 2020 - 4

INDUSTRY ANALYSIS
ESG and Responsible Investing
R
ecent data from the market intelligence
group at Institutional
Shareholder Services Inc. (ISS)-
the parent company of PLANSPONSOR-
show environmental, social and governance
(ESG)-focused strategies were a
rare source of rapid growth for asset managers
through the second quarter.
Nuveen's Fifth Annual Responsible
Investing Survey findings support this,
in terms of the top reasons affluent investors
give for their responsible investing.
According to the report, the desire to
make a material impact is still a priority
for investors, but this is the first year
Nuveen has seen a majority (53%) cite
performance as their main motivation to
opt for responsible investing.
Also in the second quarter, the
Department of Labor (DOL) issued a
notice of proposed rulemaking titled
" Financial Factors in Selecting Plan
Investments. " In the words of Secretary
of Labor Eugene Scalia, the proposal
was to " update and clarify " the DOL's set
of investment duties and requirements
enforced under the Employee Retirement
Income Security Act (ERISA).
" Private employer-sponsored retirement
plans are not vehicles for furthering
social goals or policy objectives that are
not in the financial interest of the plan, "
Scalia says. " Rather, ERISA plans should
be managed with unwavering focus on
a single, very important social goal-
providing for the retirement security of
American workers. "
Megan Fielding, senior director,
responsible investing, at Nuveen in
San Francisco, says, " At first glance, we
disagree with the DOL's premise-particularly
the aspect that investors will give
up performance with every responsible
lens. " Pointing to the survey, she says,
" The investor has spoken. Aside from
academic studies, the real-life experience
of investors is speaking to us. "
4 PLANSPONSOR.COM August - September 2020
Source: Mercer
Recent data from Mercer, shared
with PLANSPONSOR, as to how climate
change could affect one's investment
choices-to their good or detriment-
also reveals an interest in ESG from plan
sponsors. Nearly half, 46%, indicated
they think climate change presents both
an investment-related risk as well as an
opportunity. Mercer says it believes investors
can pursue funds that consider the
financial materiality of climate changerelated
risks and opportunities without
sacrificing investment returns.
In view of the DOL proposal, the
noted performance of ESG investments
and the expressed interest of plan participants/investors,
what might plan sponsors
bear in mind in the short term regarding
responsible investing?
Brian Pinheiro, attorney and head
of the employee benefits and executive
compensation group at Ballard Spahr
in Philadelphia, says, " The most important
thing the DOL said is, just because
an investment is ESG-centric, it doesn't
change the needed analysis. Sponsors
still have to consider risk, return and fees.
If, after the evaluation, the sponsor still
decides it's a prudent investment, it can be
used in the plan. " -Judy Faust Hartnett
Top Reasons for Responsible Investing
53%
46%
38% 34%
Better
performance
Source: Nuveen
Do you believe that the impact of climate change
presents an investment-related risk and/or opportunity?
l Yes-both
l Yes-opportunity
l Yes-risk
l No
l Unsure/Don't know
46.4%
8.1%
4.3%
13.9%
27.3%
Aligns with
my values
Better risk
management
Better
management
for climatechange
risks
28%
Greater
accountability
of boards to
shareholders
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PLANSPONSOR - August/September 2020

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