ESG Options Could Raise 401(k) Participation Rates | ETF Trends

Environmental, social, and governance investment options may help raise contribution rates in retirement 401(k) plans.

According to a recent Schroders 2021 US Retirement survey of defined-contribution plan participants, 40% of participants didn’t know whether their employer’s plan offered ESG investment options, and 69% of the members of the group, along with those who said their plans did not offer ESG investment options, indicated that they would or might increase overall contribution rates if offered ESG options, InvestmentNews reports. In contrast, only 31% said they would not.

The survey also revealed that among participants who were aware of ESG options, 9 of 10 said they invest in them.

“Offering plan participants ESG investment options — and providing greater plan communications about them — would not only appeal to purpose-minded investors, but also could help to motivate some participants to save more toward their retirement,” Deb Boyden, the head of Schroders’ US defined contribution group, told InvestmentNews.

According to the Plan Sponsor Council of America’s (PSCA) 63rd Annual Survey of 401(k) and Profit Sharing Plans, while ESG investments have been gaining traction in the financial industry, less than 3% of plan sponsor respondents included that option on plan investment menus, and only about 0.1% of plan assets were invested in those options, Napa-Net reports.

ESG investments were more common among the largest plans with more than 5,000 participants and among the smallest with fewer than 50 participants, where 4.2% and 4.4%, respectively, offered ESG-related investments in the plans.

Half of the participants indicated that their desire to “grow my assets” was the primary investment objective, compared to 21% without a defined-contribution plan.

The Covid-19 pandemic has also pushed more to increase investments. During the pandemic in 2020, 33% of plan participants said they raised contribution rates, while 10% said they cut their rate of savings.

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