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INVESTMENTS | ESG
more to help them see the specific societal
or environmental benefits of their responsible
investing, " the report says.
Queries on the Rise
" I increasingly hear directly from individual
investors who are trying to have
more access to credible ESG funds within
their retirement plan, " says Amy O'Brien,
global head of responsible investing at
Nuveen in New York City.
O'Brien says plan sponsors should
consider adding more options for valuesbased
investing
to
their menus
and
understand what is important to younger
investors, who are coming out of college
well-versed in the ideas behind sustainable
investing.
" Plan sponsors need to take a second
look, " she says. " In the past, we've seen
them add options, but in some cases if they
did not commit to educating employees,
they didn't do the education, and then
they didn't see the fund flow they had
hoped for. This is a way for companies to
attract and retain younger workers. "
Similarly, Brendan McCarthy, head
of retirement investing at Nuveen in
Boston, says plan consultants have been
reaching out to Nuveen looking for ESG
options, because sponsors, prompted by
employee interest, are asking for them.
" It's a regular thing, " he says.
In some cases, the option is already
available but not well-publicized to
the plans' participants. To address
this, companies can fold messaging
about their plans' ESG options into
other sustainability communications,
McCarthy says. One company he works
with did this with its communication on
Earth Day, for example.
Early Efforts and Recent
Developments
Azish Filabi, professor and executive
director at the American College
of Financial Services Cary M. Maguire
Center for Ethics in Financial Services,
says if companies want to reach these
younger cohorts, authenticity matters.
" Make sure your actions match your
words, " she says. " If you're articulating
certain kinds of values to live by, then you
need to make sure you're living by them. "
She adds that concepts related to ESG
and stakeholder capitalism are not new,
and companies need to have an opinion
on them. " Reputation risk really matters
in the ESG environment, and it could be
of material value, " she says.
In some cases,
the option
is already
available but
not wellpublicized
to
the plans'
participants.
Similarly, many companies do not
actually know what their employees think
about important current issues or if they
perceive gaps between what a company
says and does. Filabi says a five-question
annual survey of employees' views is not
enough. " Do a deeper-dive analysis on
what employee perspectives are on key
topics, " she says.
Finally, keep in mind that investors
are looking to make nuanced societal challenges
more actionable, Filabi says. For
the younger generation, this might mean
support for the local community. And, for
many, it might mean making investment
choices in line with values.
But how does a sponsor make its
values actionable if its plan lacks the
options?
Stefania Di Bartolomeo, founder and
CEO of Physis Investment, an impact
investment data platform,
in Boston,
has observed that, in general, decisionmakers
at investment companies and for
401(k)s " are part of the old generations
and do not see the need for ESG unless
it is for regulatory compliance, " while
Millennials are exercising their
influence
with their spending habits.
It will not be long before this starts to
shift, however, says O'Brien.
The Face of Change
Pressure groups
are
targeting
Investment
retirement
plans for change, and organizations
such as The Forum for Sustainable
and Responsible
and
the
Intentional Endowments Network have
put together resources for more people to
put pressure on their plan.
" I'd like to see more campaigns
about generating end investor demand for
plans, " O'Brien says. " That will demonstrate
the interest in these options for decisionmakers
and lead to outcomes. But,
often, it takes more, such as an internal
'champion' for employees who are asking
for more options, or someone who really
wants to see the company's actions in line
with its identity. "
She continues: " The reality is that a
lot of sustainability and ESG investing has
been done at a high level by sophisticated
institutional
investors. But, now, gradually,
I would say it's being democratized.
Average individual investors are learning
about it and really demanding to have
these options in their plan. "
Dave Nadig, a financial futurist
at VettaFi, a financial services firm in
Lenox, Massachusetts, says companies
should ensure that Gen Z and Millennials
are represented on committees that advise
the retirement plan. This can boost participation
and helps companies understand
what the cohorts want.
If a company is only now starting to
pay attention to ESG, it is about " 15 years
too late, " he says. " ESG is real. It's 'realer'
the younger your employee base. I don't
care what survey you look at. Boomers
care. Gen X cares, Millennials care a lot,
and it's the only thing Gen Z cares about.
If it's not
in their 401(k) plan, it's just
because they haven't yelled loud enough. "
-Rhea Wessel
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