401(k) Participant ESG Interests are Divided

401k Fiduciary401(k) participant ESG interests are not real clear.  401(k) participant ESG interests are now divided – making it difficult on participants nationwide.

Some 401(k) plan participants prioritize ESG causes over investment returns.  Other 401(k) plan participants prioritize investment returns over ESG causes.

According to a recent InvestmentNews article, a report from robo-advisor provider Betterment found that 58% of ESG investors were at least somewhat willing to sacrifice returns to achieve ESG goals.  ESG (which stands for environmental, social, and governance) pertains to funds that reflect socially responsible investing strategies.  Less than half (46%) said ESG goals and returns are equally important, 17% said ESG goals are more important, and 37% said financial returns were their top priority.

However, T. Rowe Price’s 2021 Defined Contribution Research Study cited in a BenefitsPro article, found that retirement plan participants prioritize returns over ESG goals.  When to choose between the two, more participants said they preferred investment returns over ESG causes, according to Michael Davis, head of Defined Contribution Plan Specialists at T. Rowe Price, who was quoted in the BenefitsPro article.

Both retirement plan sponsors and participants are interested in ESG funds, both surveys found.  For their part, sponsors are proceeding with caution, as they are seeking additional clarification from the Department of Labor (DOL) on its guidelines regarding ESG funds before adding these options to their investment menu, according to T. Rowe Price.  On the other hand, participants are more enthusiastic about investing in ESG funds, Betterment found.  Consistent with other survey findings we have reported on previously, 72% of participants said they would be more likely to increase their 401(k) contributions if ESG funds were available in the plan.  Schroders’ surveys reported similar findings – nearly three-quarters of 401(k) participants would boost their contribution rate if their plan offered ESG options.

Betterment found that environmental concerns are important to participants, while 76% said they are “passionate about climate change or social justice.”  The survey also found that all but 14% said that it’s important for their investments to reflect their personal values.

Despite the disparate survey results, they indicate that ESG funds are top of mind for many retirement plan participants.  This is a trend that’s certainly worth watching, and plan sponsors might consider surveying their employee population to see if ESG funds are something they want in the retirement plan.  401(k) Participant ESG interests are murky at best.  That said, it’s also important to continue to monitor the DOL’s position on ESG.  Most importantly, plan sponsors should continue to make sure they are fulfilling their fiduciary responsibilities to act in participants’ best interests, and evaluate whether offering ESG funds in the plan meets that goal.


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