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Demand grows for SRI options at US DC plans

The number of US defined contribution retirement plans offering a sustainable and responsible investment (SRI) option could double in the next two to three years, a new report by Mercer and the US SIF Foundation reveals.

The report finds that about a quarter of those surveyed either already have an SRI option or, if not, are either discussing adding an SRI option or planning on offering one in the next two to three years.

More than 80 per cent of funds say they also expect demand for SRI options to remain at current levels or increase over the next five years.

But the survey, Opportunities for Sustainable and Responsible Investing In US Defined Contribution Plans, finds that among respondents there is still a vast majority of funds that have little interest in SRI, with 73 per cent of funds saying they have no current plans to offer SRI options to plan participants.

In addition, there is also a lack of knowledge about SRI investment products and approaches. Of the 421 funds that responded to the survey, 58 per cent say they either have no understanding or have minimal understanding of SRI products and indexes.

There is also a distinct lack of demand among participants with more than 70 per cent of funds saying they have never been approached to offer an SRI option.

Craig Metrick (pictured), Mercer principal and US head of responsible investment, says the lack of knowledge of SRI products and indexes indicates that the need for education “was clearly a critical and significant opportunity”.

“There is a need for more education both for plan sponsors and participants, in terms of the SRI options that are out there, their risk and performance characteristics and what they [plan sponsors] should and shouldn’t do as fiduciaries,” Metrick says.

Education could look at how SRI options can provide both a risk management tool as well as an ethical investment option, Metrick says.

Of the 14 per cent of plan sponsors that report offering one or more SRI options, the primary reasons for doing so are to align their plans with their organisational missions and to meet participants’ demand.

Metrick says the survey also finds that the size of a plan bears little correlation to whether or not a plan offers an SRI option.

Rather, the fund’s overall objectives and culture are much more important factors, leading to SRI options being more likely to be found in the plans of non-profit, mission-based or public organisations than in corporations.

Of the funds surveyed, 64 per cent are corporate plans, and 22 per cent have more than $1 billion in assets under management.

More than a quarter of funds surveyed have less than $250 million in assets under management and almost a third of plans have between 1000 and 5000 participants.

Metrick says that the most common way for DC plans to incorporate a responsible investing option is through a domestic equity fund.

“Those are usually funds that do have negative screening and do some positive screening and ESG integration, and many of them are active shareholder advocates as well,” he says.

“Anecdotally, sitting at Mercer and working with our clients, we are starting to see more interest in plans wanting to add a small suite of funds to give participants that want to invest in responsible options a place to put all of their assets.”

US SIF Foundation supports The Forum for Sustainable and Responsible Investment (US SIF) – a US membership association for professionals, firms, institutions and organisations engaged in sustainable investing.


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