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It’s National 401(k) Day. Is your firm’s plan aligned with its sustainability goals?

Retirement plans, like retirement itself, ain't what they used to be.

September 6, National 401(k) Day, a holiday dedicated to promoting retirement savings education. It takes place the Friday after Labor Day: "You start the week with Labor Day and end the week with retirement."

It's a day for corporate sponsors of 401(k) plans to provide information and communication to plan participants, let them know the importance of saving for retirement, and how to do it.

It's also a day to highlight the growing disconnect between employer and employees when it comes to providing socially conscious funds in their 401(k) plan.

By virtually any measure, the demand for socially conscious investment products never has been greater. Thanks in large part to support from women and young investors, investment strategies that focus on environmental, social and governance (ESG) issues reached $12 trillion last year, according to nonprofit US SIF, a leading voice advancing sustainable, responsible and impact investing across all asset classes.

A quarter of all U.S. assets under professional management go into ESG — but not through company-sponsored retirement savings plans.

That's a quarter of all U.S. assets under professional management going into ESG. Yet, when it comes to the primary way in which younger generations invest, through company-sponsored retirement savings plans, their desire to match their investments and values is not being met. The exact numbers are difficult to pinpoint, and some progress is being made, but most calculations estimate that less than 8 percent of company-sponsored retirement plans include even a single ESG fund option on the investment menu.

Furthermore, a Natixis survey shows 74 percent of plan participants want access to ESG funds in their retirement savings plan. A 2017 survey by NAPA also found that 67 percent of employees who do not participate in their 401(k) plans would choose to do so if they had access to an SRI-oriented portfolio. Additionally, 60 percent of surveyed participants said that they would increase their contribution rate if they knew their investments were benefitting the "social good."

A blind spot exists

Look at virtually any company’s CSR or sustainability report and you’re likely to see significant commitments being made to address specific social and environmental issues that intersect with their business.

Increasingly, these companies’ commitments are aligned with any number of the 17 Sustainable Development Goals — a framework created by the United Nations — to address the world’s most pressing social and environmental issues. But when one examines the types of funds provided in their company’s 401(k) plan, chances are no such alignment exists for employees to invest in social or environmental funds that reflect their values.

Overcoming inertia inside companies

Last year the World Business Council for Sustainable Development (WBCSD) became the first organization to bring together top asset management firms, financial advisers and member companies to work together to identify and address the common barriers inside companies that are keeping them from adding socially responsible funds to their retirement plans.

It also set an aspirational goal to move 1 percent ($10 billion) of WBCSD member companies’ total retirement assets (estimated at $1 trillion) to be invested in some type of socially responsible funds by 2020.

Top asset management and investment consulting firms — including Natixis, Allianz Global Investors, BlackRock, Legal & General Investment Management and Mercer — have joined the WBCSDs initiative’s steering committee to help educate member companies on incorporating socially responsible investment strategies in their retirement plans.

As part of this initiative, the WBCSD released in June a practical "how to" Aligning Retirement Assets Toolkit designed to help companies better align retirement funds with their social and environmental commitments. The toolkit is free and publicly available for any company interested in aligning its retirement funds with its sustainability commitments.

The toolkit also is specifically designed to help senior executives better understand how retirement plans are governed and operated and offers guidance on how best to add socially responsible funds in their retirement plans.

Align employees’ values with retirement plans

Employees are increasingly bringing their passion for causes into the workplace and expect management to respond to their expectations with new behaviors both inside and outside the workplace. It is only logical that the values employees express through these causes also should be reflected in the ways in which they invest their money in their company retirement plans.

On this day, designed to promote retirement savings education with employees, companies would be wise to determine the degree to which their sustainability commitments are reflected in the funds provided in their retirement plan.

As the Natixis research and other studies show, when socially responsible funds are added to the plan, the participants' view of their employer improves. As a result, the employee is more likely to recommend the company as a good place to work, and it would increase the participation rate of the retirement plan. A win/win/win for employer, employee and society.

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