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ESG in Defined Contribution Plans

Defined Contribution | Investment Manager Research | SRI and ESG February 19, 2020

Environmental, Social and Governance (ESG) investing is garnering attention in Defined Contribution (DC) Plans due to participant demand. As a result, Plan Sponsors are evaluating the ESG landscape and available investment options. To ensure a thorough evaluation, we recommend taking the following four steps: Define, Approach, Implement and Measure.

ESG investing has been evaluated and widely discussed among nonprofits for over a decade. Now, we’re seeing heightened interest in DC plans, driven by demand from participants.

Here we create a blueprint for Plan Sponsors to follow when evaluating ESG investing in a DC Plan.

CURRENT STATE OF THE DC ESG MARKETPLACE

The most efficient method to study the ESG landscape is to look at the current levels of investment, peer practices and steps to prepare for action.

• Assets Invested. Assets in ESG investments rose to $12 trillion in 2018, up from $8.7 trillion in 20161. ESG funds saw $5.5 billion of net flows in 2018, the third consecutive year of record net flows2.

• Peer Practices. A recent study by PIMCO tops the list of additional recommended core strategies to add to a DC investment program3. And, as many as 20 percent of Vanguard clients, with over 1,000 participants, offer an ESG fund4. While Plan Sponsor adoption has increased, we have yet to see an increase in participant utilization.

1US|SIF 2018 Report on US Sustainable, Responsible and Impact Investing Trends
2Morningstar- Sustainable Funds Landscape | February 2019
32019 PIMCO Defined Contribution Consulting Survey
4Vanguard, “How America Saves” (2019)

The information contained herein is confidential and may not be disseminated or distributed to any other person without the prior approval of Fiducient Advisors. Any dissemination or distribution is strictly prohibited. Information has been obtained from a variety of sources believed to be reliable though not independently verified. Any forecast represent future expectations and actual returns, volatilities and correlations will differ from forecasts. This report does not represent a specific investment recommendation. Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice. Past performance does not indicate future performance and there is a possibility of a loss.

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