ESG Investments Are Trying to Make Their Way into 401(k) Plans

With increased pressure to clarify environmental, social, and governance investing in retirement plans, a recent study found that 401(k) plan investments fall short of their sustainability pledges.

According to activist investor advocacy group As You Sow, while some like and Comcast Corp have made commitments to promote social responsibility and sustainable investing, over half of their employees’ 401(k) plan assets are still invested in fossil fuels, along with companies that contribute to deforestation, manufacture weapons, or operate private prisons, Roll Call reports.

“Most employees across the nation are unaware their retirement plan investments are profiting from environmentally and socially risky companies,” As You Sow said in a recent report. “The financial risks include stranded assets, reputational risk, and other negative impacts of unsustainable business practices that can destroy shareholder value.”

ESG investing in retirement plans is beginning to gain greater scrutiny as lawmakers seek to expand 401(k) investment options with strategies that adhere to a more 21st-century mindset. For example, Reps. Andy Levin of Michigan and Suzan DelBene of Washington have both proposed bills aimed at expanding ESG options in retirement plans.

“ESG investing is growing at a tremendous rate,” lawmakers told Walsh in a letter. “In 2020 alone, $51.1 billion in net investments went into sustainable funds, nearly double the previous annual record.”

“Laws and regulations need to match this interest [in ESG],” Levin told Roll Call. “We must make it easier to invest sustainably — workers want it, and our planet needs it.”

Levin’s bill would make ESG-focused funds a default option within a plan in certain cases. He and his colleagues have argued that sustainable investment strategies can pay off financially for investors in the long run.

“Workers do not have to make a trade-off between getting a return on their investments and their principles, and the rules and regulations governing pension investments should not force them to,” the lawmakers said in a letter. “Instead, those rules should provide clarity so that sustainable investing is not burdensome.”

For more news, information, and strategy, visit the ESG Channel.