ESG: How not to tick the box in 401(k)
Building a better default series
How should fiduciaries implement an environmental, social and governance (ESG) approach into their 401(k) plans, given the updated guidance from the Department of Labor (DOL)?
Our view is that ESG considerations should be incorporated into default selections, not just as a choice option. In the long term, we believe the ability of companies to create shareholder value is intrinsically linked to their ability to navigate changing social and environmental pressures. Environmental and social trends are long term in nature and well aligned to the time horizon of the contributions in the default, which typically remain untouched for many years, if not decades.
Our analysis shows that a successful ESG strategy could increase the savings balance of a 401(k) by 16% over a savings period of 40 years.
Just as the younger generations investing in 401(k) are increasingly spending more on products from sustainable companies, they are looking to sustainable investments as an extension of this and a way to express their values. To date,
they have been more concerned than the Baby Boomers and current retirees about investing in companies that have positive social and environment impacts and avoiding those with lower ESG standards.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.