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More and more Americans are getting a socially responsible investment (SRI) option in their defined contribution (DC) plans at work, according to new Mercer Investing Consulting data released today by FTSE and the Social Investment Forum, which commissioned the groundbreaking research.
The survey finds that 19 percent of DC plans already include a SRI option and that 41 percent of all DC plan sponsors are not currently offering SRI options to investors but expect to be doing so within three years. This would translate to 60 percent market penetration for SRI options in DC retirement plans by 2010.
The new data explores the rapidly expanding SRI portion of the DC marketplace. The research was undertaken with project partners FTSE Group , AltruShare Securities, Calvert, Neuberger Berman, Northern Trust and TIAA-CREF. A total of 129 US plan sponsors, 16 DC plan administrators and 38 consultants participated in the survey, which was undertaken by Mercer Investment Consulting (plan sponsor and administrator research), with PLANSPONSOR magazine (survey of consultants).
Entitled “Defined Contribution Plans and Socially Responsible Investing in the United States,” the report concludes: “As institutional investors continue to consider environmental, social and governance issues within their investments and as these issues retain their prominence in the news, Mercer IC believes that overall demand for socially responsible investment options by DC participants will grow. In addition, certain types of organizations may see growth in SRI because of their mission, their commitment to sustainability, or because they employ a workforce with beliefs aligned with the tenets of SRI.”
Predictions for SRI growth are strong: 81 percent of plan administrators, 72 percent of consultants, and 47 percent of plan sponsors predict an increasing or steady demand for SRI over the next five years. The main forces behind this include a desire to align retirement plan offerings with the mission of the employer (e.g., a focus on corporate social responsibility), internal staff recommendations, and employee/participant requests for SRI options.
Social Investment Forum CEO Lisa Woll said: “Socially responsible retirement options are becoming a fixture of corporate America’s retirement plans. This is good news for investors and their employers. More and more Americans are interested in SRI funds because they offer a way to save for retirement, improve corporate responsibility and achieve significant environmental and social goals. Companies that offer them are providing a real benefit to their employees.”
Mercer Investment Consulting US consultant Craig Metrick said: “Mercer has been helping a growing number of DC clients provide an SRI option for their participants. We put SRI funds through the same rigorous selection process that is applied to traditional investment options. As fiduciaries, plan sponsors need to consider the merits of SRI overall, as well as the characteristics of the various investment options.”
Jerry Moskowitz, President, FTSE Americas said: “Defined contribution retirement plan assets are an important and rapidly growing part of our business. We helped to sponsor this study to identify the hard numbers behind this important new trend and to identify the barriers that remain to achieve an even wider impact. The results confirm our belief that we are at a genuine tipping point for plans offering SRI options. The challenge and the opportunity here is that we still need to do much more in terms of educating the general public about socially responsible investing.”
KEY DATA FINDINGS
Other key report conclusions include the following:- Health care and government organizations are so far the employers most inclined to add an SRI option as compared with all survey respondents.
- Actively-managed domestic large-cap equity SRI mutual funds are seeing the greatest demand from plan sponsors. In addition to this type of fund, respondents from all three groups said that actively managed income, balanced, and asset allocation/lifecycle mutual funds were most appropriate for SRI options.
- Misperceptions about the competitive track record of SRI and fiduciary issues still exist among some plan sponsors and need to be addressed.
- Plan sponsors and their advisers typically use the same evaluation criteria for SRI funds as for non-SRI funds. Past performance, volatility, and positive and exclusionary screening are viewed as the most important factors for fund evaluation. Plan sponsors and consultants/advisers primarily use non-SRI indexes to evaluate SRI fund performance.
- The number of pension consultants with clients requesting SRI fund recommendations has increased significantly over the last three years.
- Two in five plan sponsors reported that they do not currently have plans to offer an SRI option.
RESOURCE GUIDE AVAILABLE
The Social Investment Forum is encouraged by the fact that the survey findings confirm a growing demand for SRI. This demand represents an opportunity to respond to the lack of knowledge about SRI by plan sponsors. Consultants, advisers, and fund companies will need to play a vital role by providing education and information about SRI; showing the connection between corporate social responsibility and SRI; and reinforcing the fiduciary case in support of SRI.
As a first step in this direction, the Social Investment Forum commissioned Mercer Investment Consulting to produce a resource guide for plan sponsors illustrating how to add an SRI option to their retirement plan in six steps. For example, the guide points out that SRI fund options are available in a variety of asset classes and from a variety of platforms.
REPORT METHODOLOGY
The survey was sent by Mercer Investment Consulting to potential respondents representing public, corporate, faith-based, healthcare, and other plan types. In total, 129 plan sponsors responded. The majority of the respondents offer 401(k) plans, are corporate organizations with less than 25,000 plan members, and have less than $5 billion in assets. The plan administrator survey was undertaken by Mercer Investment Consulting with a total number of 16 plan administrators responding. Overall, these respondents are the largest providers in terms of size of assets and number of accounts. A cross section of consultants and advisers responded to the consultant survey sent by PLANSPONSOR magazine, including large and small organizations, institutional consulting firms, and financial advisers.
ABOUT SOCIAL INVESTMENT FORUM
The Social Investment Forum (http://www.socialinvest.org) is the national association for the social investment industry. It is dedicated to the concept, practice, and growth of socially responsible investing. The Forum's more than 600 members include financial planners, banks, mutual fund companies, research companies, foundations, and community investing institutions.ABOUT THE REPORT AUTHORS
Mercer Investment Consulting is a leading global provider of investment consulting services and offers customized guidance at every stage of the investment decision, risk management, and investment monitoring process. Mercer Investment Consulting’s Responsible Investment business helps investment fiduciaries integrate environmental, social and corporate governance (ESG) considerations into investment decision making and ownership practices. Mercer Investment Consulting is a unit of Mercer Human Resource Consulting, an operating company of Marsh & McLennan Companies, Inc. (MMC). MMC lists its stock (ticker symbol: MMC) on the New York, Chicago and London stock exchanges.
PLANSPONSOR is a source of news, information, tools and services for retirement industry professionals.
ABOUT FTSE:
FTSE Group (FTSE) is a world-leader in the creation and management of indices. With offices in Beijing, London, Frankfurt, Hong Kong, Boston, Shanghai, Madrid, Paris, New York, San Francisco, Sydney and Tokyo, FTSE Group services clients in 77 countries worldwide. It calculates and manages the FTSE Global Equity Index series, which includes world-recognised indices ranging from the FTSE All-World Index to the FTSE4Good Index Series and the FTSEurofirst Index Series, as well as domestic indices such as the prestigious FTSE 100 Index. FTSE also calculates a range of fixed income, alternative asset class, responsible investment and investment strategy indices.
The company has collaborative arrangements with the ATHEX, Cyprus, NYSE Euronext, Johannesburg, London, Madrid, Malaysia, NASDAQ, Singapore and Taiwan exchanges, as well as organisations such as APCIMS, EIRIS, EPRA, NAREIT, Nomura Securities, and Xinhua Finance of China. FTSE also has a collaborative agreement with Dow Jones Indexes and has developed a single sector classification system for global investors, the Industry Classification Benchmark (ICB).
FTSE indices are used extensively by investors world-wide for investment analysis, performance measurement, asset allocation, portfolio hedging and for creating a wide range of index tracking funds, Exchange Traded Funds, structured products and derivatives. Independent committees of senior fund managers, derivatives experts, actuaries and other experienced practitioners review and approve all changes to the indices to ensure that they are managed objectively and without bias.
